Why did the Yen rise after the disasters?

[RazzaDazzla]

My understanding would have been that the Yen would have fallen after a disaster in Japan. I assumed that investors in Japan would want to sell their Japanese assets and get back to their base or safe currencies.

I heard an explanation that the Yen rose as Japanese insurers needed to buy Yen so they could pay claims; but I thought this would have been offset by people wanting to get out of Japanese investments.

What am I not understanding?

Thanks,
Raz.

 

[So_Cynical]

Reparation of capital...the same thing happened with the USD after Lehman's fell over, Japanese insurance company's need yen to payout claims so sell some foreign assets and turn them into Yen, so the demand for yen increases.

Also many Japanese owned global business would be repatriating capital to support there domestic business and reduce risk in this time of perceived uncertainty etc.

 

[RazzaDazzla]

Reparation of capital...

That's fair enough. As I stated before; I thought this reparation of capital would have been equally off set by foreign investors fleeing Japanese investments.

Oh well, you learn something new everyday, thanks Cynical.

 

[Wysiwyg]

Oh well, you learn something new everyday, thanks Cynical.

I'll have the blue one with air conditioning, black leather seats, low profile tyres and magnesium alloy wheels.

The rise in the yen against the dollar has been something of a puzzle to officials. One explanation, rejected by Japanese authorities, is that big Japanese institutions have been bringing money home from abroad, which involves selling foreign currencies and buying yen. Another is that Japanese households, some of whom have invested overseas to get higher interest rates, are also bringing money from abroad. A third is that speculators and investors who bet against the yen are now forced to buy it to close their positions.

 

[tothemax6]

Reparation of capital...the same thing happened with the USD after Lehman's fell over, Japanese insurance company's need yen to payout claims so sell some foreign assets and turn them into Yen, so the demand for yen increases.

Also many Japanese owned global business would be repatriating capital to support there domestic business and reduce risk in this time of perceived uncertainty etc.

The thing is thought that they interviewed the firms that were going to have to repatriate assets. They haven't started yet. And even if they did the word on the street is that the quantity of funds involved would not be large enough to cause a big move in the yen price.
The current theory is that the yen spike was caused by speculation based on what happened after the Kobe quake (that is to say, there is a large initial yen price overshoot caused by anticipation of a yen rise). There are also murmurs that the japs may start selling off US bonds to aid financing the recovery, which is very bearish for the dollar.

However, I think this situation is very negative for the yen long term, because of:
Damage to production
The BOJ spewing money
The Gov selling yen as part of the new exchange rate intervention

 

[TulipFX]

Japanese government selling US bonds. Then yesterday the G7 reserve banks started selling yen to push the price down.

Whatever the case, be careful around yen.

On Thursday morning we released a Trade Alert to clients using our EA:

Dear XXXX,

Well yesterday was quite a ride! Especially on the Yen pairs. I hope you got through that ok without much pain to your account.

The markets are still a bit twitchy so Dutch and I personally are not turning KangarooEA on our accounts until next week.

Remembering that KangarooEA doesn't trade till the Monday European session. That will give us time to evaluate the new week's market.

Hopefully by then the Japanese immediate issues will have calmed down both in the financial markets and with their reactors.

Dutch and I will let you know if we decide against turning KangarooEA on at the start of next week - but as it stands now our plan is to leave it off for the last few hours of this week but have it on for next week's trading sessions.

Please be careful trading any Yen pairs at the moment. Repatriation caused the yen to strengthen and we're sure BoJ is watching the forex markets for an opening to intervene. The last thing they need is a strong Yen at the moment.

They're facing power shortage, forcing car makers to halt production...and computer companies around the world warn for a semi-conductor shortage. Moreover, the situation in Fukushima is still fragile. Beware trading yen.

* We left our demonstration accounts running through this period so everyone (including us) could see how the KangarooEA trades (or decides not to trade) in this challenging market.

Good luck for your trading and remember to stay safe. The markets will be around tomorrow to make profits from, make sure your money is too.

 

[G-Zilla]

I agree a big one would be the repatriate effect - also known as the japanese housewife effect.

i.e a lot of traders taking advantage of the carry trade, borrow in yen and buy other higher yeilding currencies and pocket the interest differential wind their trades back to reduce risk during times of uncertainty.

Doesnt have to be Japanese housewives could be hedge funds, general speculators all dont want to be holding the pot when the YEN starts to rise.

 

[tayser]

It's the best excuse for the BOJ to intervene and weaken the JPY so it kick starts production and exports once again.

I wouldn't be surprised to see AUD/JPY up near the pre-GFC highs within 6 months.

GBP/JPY has finally woken up from its 2-3 slumber. Cash money++

 

[Neutral]

Why doesn't the Yen appreciate when such disasters strike? Would it not make Japanese goods more scarce as production slows down or halts thus increasing the price of exports?

Or is it because the economy has weakened and this drives the Yen down?

 

[Paulo30]

From what I can see 2 weeks ago, and in the last few days, there is a large amount of buying up of Yen around the disasters.. and although some say that there has not been any buying yet.. it is obvious SOMEONE is doing the buying.

The other week when the GJ hit about 124.00 during the least liquid part of the day (I was watching while sitting on the couch at 7.30am), someone put in a few massive orders that whiped out a lot of stop losses.

Of course the BOJ hates a strong Yen, since it is lousy for exports and the economy, hence they will always intervene and start printing off money.. in an attempt to lower then Yen value.. thus you have GJ hitting 140 last week.. until this week's new spate of natural disasters. (Along with some lousy GBP performance).

Why doesn't the Yen appreciate when such disasters strike? Would it not make Japanese goods more scarce as production slows down or halts thus increasing the price of exports?

Or is it because the economy has weakened and this drives the Yen down?

 

[Neutral]

From what I can see 2 weeks ago, and in the last few days, there is a large amount of buying up of Yen around the disasters.. and although some say that there has not been any buying yet.. it is obvious SOMEONE is doing the buying.

The other week when the GJ hit about 124.00 during the least liquid part of the day (I was watching while sitting on the couch at 7.30am), someone put in a few massive orders that whiped out a lot of stop losses.

Of course the BOJ hates a strong Yen, since it is lousy for exports and the economy, hence they will always intervene and start printing off money.. in an attempt to lower then Yen value.. thus you have GJ hitting 140 last week.. until this week's new spate of natural disasters. (Along with some lousy GBP performance).

I think the G7 intervened in the Yen to stop it falling. Out of curiosity, what's the attraction of the GJ at the moment? Were you expecting a GBP rate hike?

 

[TulipFX]

The GBPJPY is a dramatic mover and because it is valued in pounds its pip value is higher then the other Yen crosses, so scalpers like it.

 

[Paulo30]

I've always had GJ as one of my main trading pairs.. basically, its long extended moves cover the higher than normal spread, and it's also good if your system makes use of volatility. It has had a quiet run the last few months (pre earthquake), and now has some increased activity.

I think the G7 intervened in the Yen to stop it falling. Out of curiosity, what's the attraction of the GJ at the moment? Were you expecting a GBP rate hike?

 

[tayser]

The GBPJPY is a dramatic mover and because it is valued in pounds its pip value is higher then the other Yen crosses, so scalpers like it.

eh?

10,000 USD/JPY, 1 pip = 100JPY
100,000 GBP/JPY, 1 pip = 1000JPY
1,000,000 AUD/JPY, 1 pip = 10,000JPY

all the crosses "pip value" is JPY.

the GJ price is higher than EJ, UJ, AJ, CJ, NJ because Sterling is higher against all those other currencies.

 

[TulipFX]

eh?

10,000 USD/JPY, 1 pip = 100JPY
100,000 GBP/JPY, 1 pip = 1000JPY
1,000,000 AUD/JPY, 1 pip = 10,000JPY

all the crosses "pip value" is JPY.

the GJ price is higher than EJ, UJ, AJ, CJ, NJ because Sterling is higher against all those other currencies.

You are 100% right. What a n00bie I am.

 

[Paulo30]

Well one thing to note, which makes GJ more attractive to me, is that if I make 100p on the GJ, 1 Mini Lot (10,000) works out to be about $120 AUD profit.

However, in comparison, AUDUSD makes about $92-95, and GU makes about $95, depending where the AUD is at.

 

[tayser]

Well one thing to note, which makes GJ more attractive to me, is that if I make 100p on the GJ, 1 Mini Lot (10,000) works out to be about $120 AUD profit.

However, in comparison, AUDUSD makes about $92-95, and GU makes about $95, depending where the AUD is at.

if you make 100 pip profit on any JPY cross you're going to make the same amount of money (depending on what your account's denomination is and assuming its the same lot size regardless of the XXX/JPY pair) cos your profit is in Yen. The UPL/RPL is always in the currency on the right hand side of the pair.

AUD/USD is above parity therefore any pair with USD on the right hand side is going to yield less than $1 (per pip) if your account is denominated in AUD.

AUD/JPY is less than parity (assume parity is $1AUD = 100JPY) therefore the JPY is valued higher (and therefore when crossed back into AUD you gain more).