USDJPY - Help me understand

[Storm]

I'm not very knowledgeable about FX trading, so can someone please help me understand why the Japanese Yen is increasing in value so greatly compared to the US dollar?  I would think that a natural disaster would be bearish for a nation's currency, especially when the JP central bank just printed $700 billion of money to inject into the market.

Is this FX traders speculating that repatriation of currency from JP companies with foreign assets is going to cause the Yen to rise, and just wanting to trade that?  Or is this something else?

[AdamA]

There will probably be a lot of opinions on this.  Mine is as follows:  Current events effect markets in unpredictable ways.  It's almost impossible to link cause and effect in a meaningful way, although people try to do this all the time (just read the financial section of any newspaper:  "The Dow falls amidst riots in Libya").  Usually the reasons given are people just guessing.

[Gumby]

Well one could very well speculate that there is going to be a huge demand for liquid Yen over the next few days/weeks/months. If you think about it, a lot of the money for donations and rebuilding efforts that are flowing in from all over the world — in every imaginable currency — need to be traded for Yen when they are handed off to local Japanese charities. And all of those organizations need to start handing out lots of Yen. All of the Japanese and foreign insurance companies are going to need to start cashing in their investments and start handing out lots and lots of Yen. The Japanese government needs to start handing out lots of Yen. People of Japan are selling their investments and rushing to the banks to grab their savings, in Yen. No matter where you look, there's a huge demand for Yen right now. And when you look at the devastation, it's pretty clear that it's going to take a lot of Yen to clean up this mess.

I think it's also important to keep in mind that a currency can be too strong for its own good. Strong sounds like a good thing, but a currency that is too strong makes it very difficult for foreign investments to have an impact.

The complete opposite of this situation would probably be when a government is overthrown, or appears very weak, and then the currency becomes worthless because nobody wants to be holding it.

[Storm]

Thanks Gumby.  I guess that does make sense.  It will definitely hurt Japanese exports to have a strong Yen.  I'm also worried about what the disaster will do to the tech industry since a lot of computer components such as DRAM chips come from Japan.

[AdamA]

I'm also worried about what the disaster will do to the tech industry since a lot of computer components such as DRAM chips come from Japan.

I will go out on a limb and bet that the tech sector will not be hurt by this at all in anything but mayber the very short term.

What I wonder about is the "no crisis goes wasted by the government" effects of this disaster.  Could be used as an excuse to regulate energy in various ways.

[craigr]

Don't mess with currency speculation! There are very big boys behind the scenes that can do many things without your knowledge. Here is one good reason why the Yen is doing crazy things of late:

NY Fed confirms intervention in currency markets