Chart: How JPY has Reacted to Past Quakes
March 11, 2011
This morning’s earthquake in Japan was the strongest in more than 100 years. The last time Japan experienced a quake even close to the 8.9 magnitude was in 1995 when a 7.3 quake hit the coastal city of Kobe. As we have seen in the price action in the foreign exchange market, risk aversion and repatriation flows has driven the Yen sharply higher against all of the major currencies. Although the clean up and rebuilding efforts will cost a hefty penny and the quake could temporarily paralyze the Japanese economy, the Yen could see further gains just as it did in 1995 when risk aversion and repatriation dominated the flow in the currency.
The following charts courtesy shows how the JPY rose to an all-time high against the dollar 3 months after the quake. Japanese stocks, which had already been in a downtrend continued to fall. If the same type of price action occurs this time around, USD/JPY could fall to a fresh record low.
Posted in 2010 japanese yen forecast, Japanese Yen, forex blog, jpy quake
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March 11th, 2011 at 12:04 pm
Hey Kathy,
Could you explain in more depth about why the Yen gets stronger after something like the Tsunami and earthquake in Japan?
Going by what happened with the Kobe earthquake in ‘95, it would seem that USDJPY will decrease for several months before reversing. Do you think that the BOJ will interfere if it drops below a certain level?
March 12th, 2011 at 7:24 am
Thanks Kathy, I never thought about looking at that. Makes sense though.
March 12th, 2011 at 11:10 pm
Kathy, some good points, and I like the way you look at it, makes perfect sense. I’m thinking JPY is going to be hit very hard by this earthquake and we haven’t seen the last of the problem in my view. I guess only time will tell.
March 13th, 2011 at 5:00 pm
I don’t understand how can an event that ”can temporarily paralyze the japanese economy” now cause that currency to appreciate to record highs. In 1995 there must have been some political events worldwide that caused that. My opinion is that with the recent nuclear facility problem, the event will start to bear on the economic indicators on medium term which would dip the currency in the next few weeks &will go for JPY sell