Correlation between the Nikkei and the USDJPY

Figure 10.28 illustrates the correlation between the Nikkei and USD/JPY. Although it is not as strong as the correlation in Figure 10.27, it is still significant. The axis for the Nikkei in this chart has been flipped, which means that USD/JPY falls when the Nikkei rallies and vice versa. When the Japanese stock market is doing well, it reflects on the health of the economy and the market's optimism, which is why it tends to be positive for the yen as well. When the Japanese stock market starts to tank, however, domestic and foreign investors alike become nervous and pile out of not only Japanese equities but also the Japanese yen.

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