The yen rose across the board against all 16 major currency trading partners following the strongest earthquake to hit the nation in a century. The 8.9-magnitude quake struck around 85 miles off the northern coast of Tokyo and created a 33-foot high tsunami leaving at least 32 people dead. Risk aversion was having less effect on the yen in recent days sending it to its lowest in two weeks against the dollar before the quake. But a significant jolt to investors’ confidence and heavy repatriation sent the yen higher immediately after the earthquake.
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Japanese yen – You just have to spend five minutes surveying the devastation across the affected area of Japan to quickly realize that there will be significant dislocation followed by a massive rebuild in the aftermath of the earthquake. While the yen typically strengthens on safe haven grounds when natural disaster strikes or investors lose their nerve, it wouldn’t be at all surprising to see currency markets plant the seed of economic regeneration for the second half of the year in a move that could weaken the yen on strengthening growth grounds. The Nikkei index was 1.7% lower in the aftermath of the disaster while the yen rose against the dollar to ¥82.26. Against the euro the yen rose to ¥113.35.
U.S. Dollar – The dollar index is unchanged, although it remains close to its strongest in two weeks. Losses for stock prices around the world this week were fuelled by the dawning realization that the price of crude oil might impact growth prospects and hamper efforts by central banks to reorganize monetary policy. The dollar had weakened earlier as investors concluded that the Fed was the least likely to respond to inflationary pressures. Later in the morning the February advanced retail sales data is expected to show a 1% monthly gain, while a Michigan University reading of investor confidence is expected to come off its recent high. Fear that the U.S. expansion may be at or near a peak is unsettling some investors. This has favored the dollar as it may hamper other nations’ efforts to tighten policy, thereby starving investors of yield advantages against the dollar.