After this week's slide and Thursday's broad market plunge, the yen has regained favour among investors. FX Concepts Chairman and Chief Executive Officer John Taylor said on Friday he expects the dollar to fall back to around 88 yen by the beginning of June.
That was roughly the level touched on Thursday afternoon - and the lowest since December 2009 - as the dollar slid more than 4 percent and posted its worst single-day decline against the yen since October 1998.
The euro, on the other hand, hit a record low of 110.49 yen on Thursday, but has since recovered to trade 1.2 percent higher at 116.04 late on Friday.
The euro/yen pair has become a proxy for risk appetite, more so than dollar/yen, with investors shunning the euro because of the ongoing European sovereign crisis. "Risk trades will be off for some time. In times like this, we have to cut our risk, because we don't know what tomorrow brings," Taylor told Reuters in an interview.
Taylor runs one of the largest currency hedge funds in the world with assets under management of $7.6 billion. The yen and dollar have become symbols of safety since the global financial crisis in late 2008 and the first half of 2009 and more recently in the wake of Europe's recent debt travails.
Investors flocked to yen- and dollar-denominated assets because of their huge liquidity and the view that Japan and the United States have stable financial systems. The yen's positive correlation with market volatility as measured by the VIX index has returned as a result, thanks to Thursday's market unrest.
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