The yen was the big winner in the currency markets this week as the continuing fallout from problems in the credit markets saw investors rush to take risk off the table.

It all started so differently as yen-funded carry trades staged a tentative recovery early in the week, boosted by soothing words from the Federal Reserve. The Fed, which held US interest rates at 5.25 per cent on Tuesday, said while “downside risks to growth” had “increased somewhat”, inflation remained its predominant policy concern and it was not inclined to cut interest rates unless broad economic conditions worsened markedly.