In times of financial crisis, investors can reasonably be expected to park their money in the least risky capital markets. In this case, that means those in the US and Japan. Compare this so-called "safe haven" trade with the "carry trade" that preponderated in previous years, as investors shifted capital away from Japan in order to earn higher yields. Now, as volatility surges to dangerous levels, investors are going to increasingly great lengths to mitigate risk. At least until the negotiations surrounding the US government bailout are resolved (whether in success or failure), big bets are off the table. In other words, few investors continue to scour the globe for yield, which eliminates the raison d’etre of the carry trade. Bloomberg News reports:

"These are not the right times to be putting on any bold trades because it’s the perfect environment for getting whipsawed,” said [one analyst]. "I think waiting on the sidelines is probably the most prudent thing to do.”

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