The yen reached historic highs against the dollar late Wednesday.
It’s currently hovering around the 79.10 to the USD mark. The chart of recent action is pretty special though. Compared to Wednesday’s drop, Friday’s move looks puny:
One of the prevailing theories (still) is that Japan’s disaster will will increase repatriation flows by insurers to meet claims, or that Japanese companies will repatriate foreign earnings to help rebuild — all boosting the yen. This school points to what happened after the 1995 Kobe earthquake to illustrate their case.
Nomura have already dismantled the theory — pointing to a vastly different global monetary situation in 1995. What’s more, actual repatriation of assets in 1995 looks to have been relatively small (there’s a decent Goldman Sachs chart here).
So what’s moving the yen?
Technicals as investors unwind carry trades, hit stop-loss triggers or simply move to hedge/short-cover is an obvious one. But then there’s that speculation question too.
Earlier Thursday morning, Japan’s economic and fiscal policy minister Kaoru Yosano managed to avoid making any comment on whether the Bank of Japan might intervene in the currency. But he did acknowledge that yen speculation is occurring while simultaneously pledging to fight speculative activity arising from the quake.
But prospects for yen intervention may be bleak.
You can see the BoJ’s unsterilised intervention in the last decade in the below chart from Mizuho International. It had some significant impact initially, but this declined as the market’s position grew and tested the central bank’s resolve.
(That recent move in Japan’s current account balance is worth a look too).
It’s no wonder currency analysts like BNY Mellon’s Simon Derrick figure the best course of action could be coordinated intervention to help weaken the yen.
Yosana said Thursday international help isn’t required.
Meanwhile the BoJ has yet to make its move.
Related links:
Yen strength is likely to prove short-lived - FT
Earthquake – from Japan to the States, and back again - FT Alphaville