The yen has been the main standout of the majors over the past 24 hours and year to date and remains the only currency weaker vs. the dollar overall. There has been much arm-waving about the trade numbers because 2011 was the first full-year deficit for over 30 years, despite the fact that they were better than expected. This was always going to be the case though, so there’s more to the latest moves than old news. The sense is that many were caught off-guard by yesterday’s gains on USD/JPY, leading to covering of the stretched short dollar positions (as seen in CFTC data), with the dollar having traded less as a risk asset than would have been traditionally expected given the strong performance of equities so far this year. That said it’s interesting to note the higher inverse correlation of CHF/JPY to risk sentiment in Europe over the past three months with CHF/JPY gaining as the sovereign CDS index for European governments improves (see chart.) This suggests that the yen is becoming more intertwined with sovereign sentiment in Europe than the Swiss franc which remains constrained by the cap on CHF strength. Should this continue, then the fate of the yen more lies with Europe than with Asia for the coming months.