Risk-on vs risk-off: what each one really does in forex

Risk-on and risk-off are the two moods the market swings between: one where money goes looking for return, one where it goes looking for safety. The textbook tells you which currencies win in each. Our one-minute data for 2026 shows that the full textbook pattern is rare in both directions, and that the worst days for the classic risk gauge were often about the yen, not about fear.

Each one in one sentence

• Risk-on: investors are willing to take risk, so money flows into assets tied to growth and yield, and out of the places it parks when it is afraid.
• Risk-off: fear takes over, so that money flows back out of growth and yield and into safe havens.

Neither is an indicator with a number on it. They are labels traders put on a day after looking at several markets at once, which is why two desks can call the same session differently.

What risk-on looks like

In a risk-on market, stocks rise and investors reach for yield. In forex that means the currencies tied to commodities and global growth, such as the Australian dollar (AUD) and the New Zealand dollar (NZD), tend to gain.

The funding currencies tend to lose. When the mood is calm, traders borrow in a low-yielding currency to buy a higher-yielding one, which is the carry trade. The Japanese yen (JPY) has long been the classic funding currency, so risk-on usually means a weaker yen.

What risk-off looks like

In a risk-off market, stocks fall, volatility jumps and the carry trade unwinds: traders sell what they bought and buy back what they borrowed. The commodity currencies drop, and the havens rise. The usual list is the US dollar (USD), the Swiss franc (CHF), the yen and gold.

That list is a spectrum, not a team. We wrote about the pecking order among the havens and about the effect of a spike in the VIX, Wall Street's volatility index, on forex. This post puts the two moods side by side and checks the textbook against our own data.

The textbook, side by side

AUD/JPY is one of the pairs traders quote most as a risk barometer, because it puts a growth currency against a funding currency. When it falls hard, the reflex is to call the day risk-off.

What our data shows

We took the sessions from 13 January to 7 October 2026 in our one-minute feed, measured from one 17:00 New York close to the next (gold one hour earlier, where its session ends in our feed). Two gaps in the feed cost us four sessions, which leaves 188 sessions. We do not carry AUD/JPY, so we built it from AUD/USD and USD/JPY at the same close.

The first check is how closely each pair moved with AUD/JPY from one session to the next. A correlation of 1 would mean they move as one; −1, that they move in opposite directions; 0, that there is no relationship.

AUD/JPY is made of AUD/USD and USD/JPY, so it moves with both by construction. The telling comparison is between the pairs it is not made of. The other yen cross, the euro against the yen (EUR/JPY), tracked it at 0.73; the other commodity currency, NZD/USD, at 0.32. Over these sessions AUD/JPY behaved more like a yen cross than like a gauge of commodity currencies. The franc barely registered: neither franc pair comes near it.

The worst AUD/JPY days were often about the yen

We took the 19 sessions where AUD/JPY fell most, the worst 10%, all of them down 0.65% or more. A fall in AUD/JPY is the sum of two moves: the Australian dollar against the dollar, and the dollar against the yen. So we split the 19 by which of the two did more of the fall.

The yen did more of it in 9 of the 19. On six of those nine days the Australian dollar actually rose against the dollar. In the other 10, the Australian dollar did most of the falling.

Read down each column and they are two different days. Gold had no close in our feed for one of the nine yen sessions, so that cell counts eight.

Our daily roundups recorded why the yen moved on three of the nine:

• 30 July: the yen surged on suspected intervention ahead of a Bank of Japan decision, as our roundup of 31 July reported.
• 3 September: hawkish Bank of Japan signals and renewed intervention talk, in our roundup of 4 September.
• 25 September: Japanese officials said President Trump had raised the yen's weakness with Prime Minister Takaichi, in our roundup of 26 September.

All three were about the yen itself, and AUD/JPY fell because that half of the pair moved. No roundup covered the session of 31 July, and on 7 September, a US holiday, ours described the yen buying but not its cause. The other four (23 January, 10 February, 23 March and 30 April) came before our roundups began, so we can show the moves but not the reason.

When the Australian dollar led, the dollar rose against almost everything

In the 10 sessions led by the Australian dollar, the dollar rose against the yen in 8, against the franc in 9 and against the Canadian dollar (CAD) in all 10, and gold fell in all 10. If those were risk-off days, the haven was the dollar, not the yen.

But a broad dollar rally is not always fear. On 23 June, one of the 10, our roundup the next morning credited the dollar's climb to bets on a hawkish Federal Reserve, with a tech sell-off in the background. Two causes, one chart: the pattern alone cannot tell them apart.

The textbook pattern was rare in both directions

The full textbook risk-off needs the Australian dollar down and the yen up at the same time. We counted the sessions where AUD/USD and USD/JPY both fell by at least 0.3%: one in 188, on 12 February. Lowering the bar to 0.2% gives five.

The mirror image, both up by at least 0.3%, happened five times, and ten times at 0.2%. That is rare too, but the risk-on version turned up five times as often at the 0.3% bar and twice as often at 0.2%. The best days for AUD/JPY also looked more like the textbook: AUD/USD rose in 18 of the 19 best sessions and USD/JPY in 15.

Gold did not behave as a haven on these days. On 12 February, the one clean risk-off day, it fell 3.20%. It rose in 14 of the 18 best AUD/JPY sessions it had a close for, and it fell in all 10 sessions led by the Australian dollar. We have seen a week when gold broke from the haven script before.

What should you do with this?

• Do not read risk-off from one pair. A falling AUD/JPY is a question, not an answer. Check AUD/USD and USD/JPY separately: if the yen leg is doing the work, it is a yen story.
• Look for agreement. Risk-off has a better case when the commodity currencies fall against the dollar, when the yen and the franc rise as well, and when stocks fall. One market moving alone is just one market moving.
• Watch the news on Japan. Every yen-led session we could trace had a Japanese cause: intervention, Bank of Japan signals or officials talking about the currency. Intervention and official comments do not come with a time on the calendar, and USD/JPY's own drivers can move the whole yen bloc in a day.
• Size for the range. On a real risk-off day the moves get bigger across the board, which is the argument in our piece on the fear gauge.

What this does not tell you

• No stocks, no VIX. Our feed carries currencies and metals only, and we have kept daily VIX readings for just two weeks. Every label here comes from currency moves, not from the stock market that usually defines the mood.
• One year, one regime. 2026 had a busy yen story, with intervention and a hawkish Bank of Japan, and a hawkish Fed. In another year the yen may behave much more like the textbook haven.
• Close to close only. A session can swing into risk-off at the London open and recover by New York. We measure where it ended, not what happened in between.
• The cut-offs are ours. Whether we take the worst 5%, 10%, 15% or 20% of sessions, the yen did most of the fall in 6 of 9, 9 of 19, 13 of 28 and 18 of 38: two thirds of the worst 5%, and close to half at every wider cut. The 0.3% and 0.2% bars for the clean pattern are ours too, and we gave both.
• The causes are what our roundups recorded. Six of the nine yen sessions have no recorded cause, and we did not guess at those.