Yen Rallies on Repatriation
March 14th, 2011Via: Reuters:
The yen rallied broadly early in Asia on Monday but quickly pared gains in volatile trade as nervous traders waited to see what action Japanese officials will take to keep markets calm after Friday’s massive earthquake and tsunami hit the country.
The Japanese currency had risen sharply on Friday on talk of repatriation flows as the disaster unfolded. On Monday, the country is battling to prevent a nuclear catastrophe and to care for millions of people without power and water.
“People would be concerned the BoJ will flush the financial system with liquidity today and if the yen continues to strengthen too far, it’ll come into the market to intervene,” a trader at a U.S. investment bank said.
Bank of Japan Governor Masaaki Shirakawa has said the central bank will provide huge amounts of liquidity to the banking system on Monday to keep markets stable.
The dollar skidded to a low around 80.60 yen on trading platform EBS, compared with 81.87 yen late in New York on Friday, before quickly halving those losses to last stand at 81.42 .
The drop in dollar/yen triggered a wave of stops that also saw yen crosses caught up in the volatile trade. The euro fell more than 1 percent to a low around 112.62 yen , before bouncing back to 113.40.
A senior finance ministry official reiterated that Japan would take decisive measures on currencies if needed, when asked about the yen’s strengthening against the dollar in the wake of Friday’s devastating earthquake.
More: Reuters:
Shaken by the prospect of nuclear meltdown after a devastating earthquake and tsunami, Japanese investors will dump overseas assets on Monday and bring their money home to help finance reconstruction.
Positioning for this could send the dollar plummeting versus the yen on Monday and lead to a sharp slide in Treasuries since U.S. government bonds are a favorite asset of Japanese investors, market analysts said.
Stocks also are likely to come under pressure.
Japanese insurers will probably sell some of their most liquid foreign assets such as U.S. Treasuries so they can respond to the worst disaster since World War Two.
The crisis could lead to insured losses of nearly $35 billion, risk modeling company AIR Worldwide said, making it one of the most expensive disasters in history and nearly as much as the entire worldwide catastrophe loss for the global insurance industry.
