If you watch SPY all day, it’s worth keeping a USD/JPY chart open next to it. The dollar-yen exchange rate and the S&P 500 often move together, and when they suddenly stop doing that, it’s usually telling you something.

The two pieces

USD/JPY is the exchange rate between the US dollar and the Japanese yen, one of the most heavily traded currency pairs in the world. When it goes up, the dollar is buying more yen.

SPY is the SPDR S&P 500 ETF, nicknamed the “Spider”. It holds the stocks in the S&P 500, so it moves with the index.

Why they tend to move together

Risk appetite is the big one. The yen is a classic safe haven, and it’s also the currency people borrow cheaply to fund bets elsewhere (the “carry trade”). When investors feel confident, they sell yen to buy riskier assets, the yen weakens, USD/JPY rises and stocks rise along with it. When fear takes over, the process runs in reverse: traders unwind those bets, buy back yen, USD/JPY drops and stocks usually drop too.

So most of the time the relationship is positive: USD/JPY and SPY go up and down together. The August 2024 selloff was a textbook example, when a sharp jump in the yen and a carry-trade unwind hit stocks at the same time.

Economic data moves the pair directly. Strong US numbers tend to lift the dollar against the yen. A hawkish surprise from the Bank of Japan does the opposite. Those currency moves can then spill into stocks, especially if they force carry-trade positions to close.

Shocks can scramble it. In a sudden geopolitical scare, money can run to the dollar and the yen at once, so USD/JPY can move either way while stocks fall. Correlations are an average, not a rule.

How traders use it

  • As an early warning. A fast drop in USD/JPY while SPY is still calm is worth paying attention to. It can mean risk is coming off somewhere.
  • For risk management. If you’re long stocks and also positioned for a stronger dollar against the yen, you’re making roughly the same bet twice.
  • As context. Big moves in the yen often come with changes in global rates and liquidity, which matter for stocks too.

For more on how Japan’s rates feed into US markets, see what a Japanese rate hike means for markets and Japanese money flowing home.