By Chuck Butler

As I said above, most of the major currencies got whacked yesterday. But not Japanese yen! When things get really dark in the U.S., that's when the dollar and Japanese yen shine.

To me, that is still a strange phenomenon. The dollar can be strong vs. almost every currency on the face of the earth, but losing ground to yen. You would think that the other currencies would get some love just based on the dollar / yen cross!

Recall, I've explained the currency pairs and crosses before, and how one major pair's (like dollar / yen) usually carries over to the other currencies.

But the dollar and yen were the two major currencies used to fund the carry trade, so they are getting bought at the same time. This is causing all kinds of ripples in the currency karma.

Why Own the Yen Right Now!

The Bank of Japan (BOJ) has a tendency for setting the country's interest rates low, so the yen has been a popular currency with investors during the past decade to use for carry trades.

Fortunately for yen, the carry trade is considered a "risk trade." And in today's market environment, with the financial meltdown, "risk trades" are being unwound. In other words, investors are taking them off their books.

This simply means that investors are covering all those short yen positions, so traders have to buy back yen. This unwinding of carry trades has already fueled a 13% rise in yen VS the dollar.

But we’re not done yet. There’s plenty of good news left for the yen. The carry trade is nowhere near finished unwinding. In addition, there are a number of "risk events" that have happened in 2008, and many believe there will be a number more as the U.S. economy is dragged through the mud of a protracted recession.

The prospects for further gains in yen VS dollars look good. But please keep in mind that the BOJ has been known to intervene. At any time, the BOJ can use their vast treasure chest of reserves, to stem the yen's rise.

However, the force of the carry trade unwinding could be too large a force to control. Either way, the Japanese yen is still the best currency to own throughout the duration of this crisis.