Yen Advances as Earthquake, Tsunami Prompt Japanese to Repatriate Currency


Yen Advances as Earthquake, Tsunami Prompt Japanese to Repatriate Currency
By Keith Jenkins and Candice Zachariahs - Mar 11, 2011 2:56 PM GMT+0200 
The yen surged against all 16 of its most-traded counterparts after the worst earthquake in at least a century struck Japan, spurring domestic investors to buy the currency as a haven.

The Japanese currency slid immediately following the 8.9- magnitude temblor, weakening as much as 0.4 percent against the dollar and depreciating versus all major peers as a tsunami of 10 meters (33 feet) engulfed towns along the northern coast. The euro fell versus the dollar for the fourth day this week amid concern Portugal may be moving closer to seeking financial aid. The pound declined as insurers led U.K. stocks lower.

“The yen may be strengthening on some domestic repatriation of the currency,” said Jane Foley, a senior strategist at Rabobank International in London. “The yen generally benefits in times of uncertainty created by natural disasters. The yen hasn’t fully given up its safe-haven status, despite the fact that Japan has been hit by this crisis.”

The yen appreciated 0.7 percent to 82.37 per dollar at 7:29 a.m. in New York, and jumped as much as 1.2 percent, the most since Dec. 28. It earlier fell as much as 0.4 percent to 83.30, its weakest level since Feb. 22. Japan’s currency strengthened 0.8 percent to 113.57 per euro. The 17-nation common currency was less than 0.1 percent lower at $1.393, after rising as much as 0.3 percent.

Repatriation Effect

“Japanese investors are cutting back overseas risk,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “Overseas assets are being sold and the proceeds converted back into yen. Repatriation’s the key and is behind the stronger yen.”

The yen strengthened about 20 percent versus the dollar in three months after the 6.9 magnitude Kobe earthquake in January 1995, which claimed more than 6,000 lives. The Japanese currency advanced to 79.75 yen on April 19, 1995, from 99.11 yen per dollar on Jan. 17.

Prime Minister Naoto Kan’s government set up an earthquake response team as buildings shook violently in Tokyo. The quake struck at 2:46 p.m. local time at 130 kilometers (81 miles) off the coast of Sendai, north of Tokyo, at a depth of 24 kilometers, the U.S. Geological Survey said.

“Natural disasters can have an inflationary impact,” Foley said. “As the rebuilding effort commences, growth may rebound significantly. Authorities have tried to create inflation in Japan for a couple of decades. If we did have inflation then this could set Bank of Japan policy back on a more normal route,” boosting the currency, she said.

ECB Speeches

The euro is headed for its biggest weekly drop against the dollar since January on speculation European policy makers meeting today will struggle to agree on measures to combat the region’s debt crisis. The leaders scheduled to meet in Brussels have set a March 25 deadline to approve a comprehensive package.

The European Union should set up a new agency to sell bonds on behalf of member countries and eventually issue European-wide debt, European Central Bank Executive Board member Lorenzo Bini Smaghi said today in Lucca, Italy. ECB Governing Council member Mario Draghi speaks in Milan today.

The German inflation rate, calculated using a harmonized EU method, increased to 2.2 percent in February from 2 percent a month earlier, the Federal Statistics Office in Wiesbaden, Germany said today, confirming a Feb. 25 estimate. That’s the highest since October 2008.

Tsunami warnings were issued for countries including Taiwan, the Philippines, Indonesia and Papua New Guinea. The Nikkei 225 (NKY) Stock Average tumbled 1.7 percent and the MSCI World (MXWO) Index of shares fell 0.4 percent.

“The market remains nervous,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in an interview from Sydney. “The U.S. dollar was bid across the board and equity markets and futures sold off sharply.”

The pound dropped 0.3 percent to $1.6010 as the FTSE 100 Index declined 0.4 percent. It weakened 0.2 percent to 86.11 pence per euro after a report showed U.K. producer-price inflation slowed in February from a month earlier.

To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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