JAPAN AND THE CURRENCY MARKETS

FOREX FOCUS: ALL EYES ON JAPAN

The Japanese earthquake, tsunami and nuclear reactor crisis had an instant effect on the currency markets.

Liz Phillips

The Telegraph, March 23, 2011

Most dramatically affected, unsurprisingly, was the yen, which surged to record highs against the US dollar. Other currencies were weakened including the Australian, New Zealand and Canadian dollars.

The Swiss franc gained, maintaining its role as a safe haven in troubled times. After all, Japan’s natural disasters were heaped on a world already thoroughly shaken by events in the Middle East.

This week we are seeing some rebalancing as the situation in Japan calms, share markets return to something like business as usual and longer-term effects can be calculated.

The surge in the yen - due largely to traders buying the currency in expectation of a massive repatriation of funds to Japan from overseas (Japanese investors tend to have a lot of overseas investments, and buy back their own currency in trouble times, in contrast to investors in most other countries) - created problems both nationally and internationally. At a time of considerable economic and financial misery, the strength of the yen compounded an already tragic situation.

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