Most forex traders have come across the US dollar index and hopefully keep a close eye on it, for a view of the market's attitude towards the US dollar. However, there is also an index for the Japanese Yen which is equally (if not more important). This index tracks the Yen against the Aussie, Kiwi, Euro & US Dollar and simply from these four currencies we can see its importance in telling us about the market's view of risk. In other words, with two comm dollars making up 50% of the index - it's a perfect vehicle to judge market sentiment. If the Yen index is rising, we can be pretty certain markets are risk averse & equities (in particular the Nikkei 225) will be falling. This will immediately help to frame the trading session ahead in terms of risk & sentiment which will then be reflected in whatever currency pair we trade.
Here is a screenshot of the daily chart for the YEN index and we can see immediately where the index ran into the longer term resistance at 8650, but is now moving back to test the next logical level of support at 7950, as shown with the green dotted line. This current move lower is mirrored in equities generally meandering higher during these quiet summer days.
However, if this index breaks the key support at 7950 - we can expect equities to break higher dramatically higher, at a time when most market analysts are suggesting a sharp pullback in risk assets.
I like this index not only for its simplicity, but also for the information it gives me about market sentiment - which can be difficult to gauge solely from the US dollar index (or even gold) - more on that later!