Over the last couple months, the Dollar has notched some impressive returns against nearly all major currencies, including a 13% gain against its chief rival, the Euro. Nearly is italicized because the pack includes a lone stray-the Japanese Yen-which has managed to maintain most of its value during the Dollar rally. The Yen has benefited from the same trend towards risk aversion that has underlied the Dollar’s strength. Because of the preponderance of carry trades which utilize Yen as a funding currency, spikes in volatility tend to benefit the Yen disproportionately as skittish investors unwind their Yen-short positions. Even excluding volatility, a global easing of monetary policy (including recent cuts in Australia and New Zealand) has lowered yield differentials and made the carry trade far less lucrative. In any event, the Yen now finds itself locked in an epic battle with the Dollar to determine which currency is the least risky in times of crisis. The Wall Street Journal reports:

"As we’ve seen during past episodes of risk aversion and the unwinding of risk trades, some of those were funded with the yen. As those were unwound it involves buying back the yen and it appreciated against a lot of currencies."

Read More: Clash of the Titans: The Dollar and Yen