This could be the new currency to watch

As global stocks sell off, one overseas currency has been picking up steam.

The Japanese yen has risen 3 percent against the U.S. dollar this year, and it's one of the best-performing currencies of the year. According to Kathy Lien of BK Asset Management, the yen tends to outperform in times of trouble because of its widespread use as a funding currency.

Because the Japanese government has kept interest rates near zero for years, the yen has been a cheap source of borrowed money to put toward more speculative trades, Lien said. But as economic uncertainty has rocked markets around the world, investors are now unwinding big bets and covering shorts on the Japanese yen on a massive scale.

"People are bailing out, they're bailing out of trades in general and that means buying back the Japanese yen," Lien told CNBC on Thursday.

Commodities expert Dennis Gartman made a similar observation on CNBC "Worldwide Exchange" on Friday. While the yen has surged, Gartman recommended that investors go to cash or gold as safe havens, rather than the yen.

"The yen strength really has surprised me recently, until it dawned on me," he said. "Over the course of the past couple years with the bull market in equities, people funded their positions in the equities with yen. Now that they're coming out of those positions, they are unwinding those yen trades, those carry trades."

The yen rose 1 percent against the dollar on Friday as stocks dropped globally. Lien believes the yen will see more strength thanks to the tumultuous market.

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"We believe the market turmoil isn't over, and therefore the yen is going to continue to rise," she said.

That could mean more trouble for foreign and domestic markets, technician Rich Ross of Evercore ISI said, as the yen versus the U.S. dollar approached the critical level of 116.

"A breakdown on the charts means a stronger yen. It means a flight to safety," Ross said on CNBC's "Trading Nation" on Thursday. "It also provides a headwind for Japanese equities. That's been one of the better, if not the best, trades over the last couple of years."

Lien said a stronger yen will deal a big blow to Japanese companies, which are already struggling with the economic slowdown in China and recent market volatility. In the U.S., companies that import technology from Japan will see their profit margins squeezed by the strengthened currency, she said.

However, Lien said U.S. companies that directly compete with Japan, such as GM versus Toyota, may be better positioned to outperform.

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