For example...Lloyds of London needs to buy JPY to pay insurance companies in Japan their hedge so they in turn can pay people in Japan their insurance cover. People in Japan don't accept GBP.
Speculators are betting on JPY rally because of it. A massive JPY rally following the Kobe earthquake in 1995 serves as a blueprint.
This quake will have a major impact on how currencies behave in coming weeks/months because of cross border real-money flows in and out of Australia/Japan/UK/EU and Switzerland."
If Japan is a big Exporter then over the next little while, JPY won't be in much demand (since its exports decreased and the economy is in trouble because of its earthquake). If you are justifying the fall in USD/JPY using the "Insurance theory", then can we expect that over the next little while USD/JPY should increase significantly?
Different countries approach disasters differently, and Japan can't really take their rates much lower, but NZD lowered rates to help with their own recovery. If Japan lowered their rates, the down trend in usdjpy would likely intensify.
This is going to be a bit tricky over the next few weeks -- imo. Today's action was due to repatriating yen to pay for damages and basic risk aversion. However, the real extent of the damage has yet to be determined. If it is great (eg, some of the nukes melt down) then there could be a very big reversal and the yen may crash. Less dramatic if the damage is less but infrastructure needs major repair (eg, rebuild train lines, roads, manufacturing plants). I feel really bad for the people there and hope for the best, but things seem to be slipping away at this time, at least according to the US media. I am not a big yen trader, but I will work up those charts this weekend and be on the charts this Sunday evening. God bless the people of Japan.
History on the USD/JPY reaction to earthquakes is actually very JPY positive. To my humble knowledge the JPY can strengthen while everybode are waiting for decline.
This is going to be a bit tricky over the next few weeks -- imo. Today's action was due to repatriating yen to pay for damages and basic risk aversion. However, the real extent of the damage has yet to be determined. If it is great (eg, some of the nukes melt down) then there could be a very big reversal and the yen may crash. Less dramatic if the damage is less but infrastructure needs major repair (eg, rebuild train lines, roads, manufacturing plants). I feel really bad for the people there and hope for the best, but things seem to be slipping...
Ignored
Unfortunately, the some of the nukes seem to be damaged, with one containment building exploding earlier today, and the reactor housed in the building may be in the process of a meltdown. One US news agency reports that a second reactor at this site is now in serious trouble, and that a third reactor is showing dangerous signs of failure. They may not actually melt down, but the dangers are worth noting prior to the market open tomorrow.
Joined Aug 2010
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Status: Game on: Buy low sell high.
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Could get interesting:
BOJ Plans Multitrillion-Yen Operation Monday
Published:Saturday, 12 Mar 2011 | 2:56 PM ET
By: Reuters
The Bank of Japan plans to offer several trillion yen (tens of billions of dollars) to the money market on Monday in an emergency market operation aimed at soothing market jitters after a massive earthquake and tsunami hit northeastern Japan, Jiji news agency said. This will be the central bank's first so-called same-day operation since last May, when the Greek debt crisis roiled the global financial market, Jiji said.
The BOJ offered to supply 2 trillion yen ($24.4 billion) to the money market on a same-day basis for two consecutive working days in May.
The BOJ said after the quake struck on Friday that it would do its utmost to ensure financial market stability and to smooth the settlement of funds, including through the provision of liquidity.
Unfortunately, the some of the nukes seem to be damaged, with one containment building exploding earlier today, and the reactor housed in the building may be in the process of a meltdown. One US news agency reports that a second reactor at this site is now in serious trouble, and that a third reactor is showing dangerous signs of failure. They may not actually melt down, but the dangers are worth noting prior to the market open tomorrow.
hmmm same wasnt seen for the AUD flooding and NZD earthquake....
Ignored
One of the reasons for AUD strength was its export of natural resources (iron, coal, copper etc). The floods damaged the mines and transport infrastructure which meant less export earnings.
As for insurance payouts, Japan is more insured than Australia (in terms of per person) and Lloyd's of London collect more re-insurance premiums from the Japanese than the Australians which means the payouts will be higher. Already some of the Lloyd's insurance companies shares are down 5%.
My thoughts and prayers are with the people of Japan and I hope they recover soon from this natural disaster.
At the end of a day JPY started to fall. I believe that JPY will fall at least for a few days, until their enormuos resources are redirected to the region. Situation will be much more predictable after the BOJ meeting.
JPN is second only to china in holdings of US treasuries, and I believe first or second in worldwide debt ownership. that's why, counterintuitively, the jpy will strengthen when there is bad news coming out of japan. they have to re-patriate their funds for them to be of any use to its citizens. Similar type of situation for most funding currencies with a larger manufacturing/export pinned economy.
In NZ since foreign countries seeking yield differentials account for a much larger portion of ownership, their liquidation activities put downward pressure on the kiwi following the earthquake which is a bit more intuitive.
"The three largest motor manufacturers – Toyota, Honda and Nissan – said they would stop production at almost all of their domestic assembly plants. The safety of the workforce and deaths were cited as reasons behind the decision. The electronics giant Sony also said it would be shutting down production."
