Yen Strengthens to Record Against Dollar on Radiation Concern
March 16 (Bloomberg) -- Michael Holland, chairman of Holland & Co., discusses his investment strategy and the impact of Japan's natural disasters and damaged nuclear reactors on global financial markets. Holland speaks with Betty Liu, Sheila Dharmarajan and Dominic Chu on Bloomberg Television’s "In the Loop." (Source: Bloomberg)
March 16 (Bloomberg) -- Stefan Keitel, chief investment officer at Credit Suisse Asset Management, talks about his strategy for Japanese equities. He speaks with Andrea Catherwood on Bloomberg Television's "Last Word." (Source: Bloomberg)
The yen rose to a post-World War II high versus the dollar as risk of radiation leaks from crippled nuclear plants in Japan added to speculation insurers and investors will redeem overseas assets to pay for damages.
The four-day rally in the yen prompted speculation the Bank of Japan may intervene for the first time since September in an effort to counter repatriation flows and shore up the competitiveness of Japanese companies. The yen erased earlier losses after Tokyo Electric Power Co. said a reactor containment vessel may have been breached at the crippled Fukushima Dai-Ichi power plant, deepening Japan’s nuclear crisis and increasing the risk of radioactive leaks.
“It’s a mix of risk aversion and repatriation that’s driving the yen to strengthen,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “If there is repatriation coming back to Japan, the stronger yen is making it even more expensive to purchase yen.”
The yen gained as much as 1.2 percent to 79.59 per dollar, passing its a post-World War II high of 79.75 reached in April 1995.
Yen Path
In an attempt to slow the yen’s 15 percent appreciation last year, the Bank of Japan sold 2 trillion yen ($25 billion) in September in the nation’s first currency market intervention since 2004. Governments and central banks intervene by selling or buying currencies to influence prices.
The yen has strengthened 3.9 percent since Japan’s strongest earthquake on record last week caused a 7-meter (23 foot) tsunami that engulfed the northeast coast and damaged nuclear reactors.
The currency touched 80.22 on Nov. 1 as the Federal Reserve announced a second round of so-called quantitative easing to purchase $600 billion in Treasuries. The U.S. is Japan’s second biggest trading partner.
The currency reached its previous postwar high three months after Japan’s 6.9-magnitude Kobe earthquake, on speculation that bilateral talks to open up Japan’s auto market to U.S. exports would fail. Nearly two-thirds of the U.S.’s $66 billion trade deficit with Japan in 1994 came from cars and auto parts, and the Clinton administration repeated threats in April 1995 that unsuccessful negotiations might lead the U.S. to impose sanctions.
The dollar rebounded as the U.S. trade deficit narrowed, meaning foreigners had fewer dollars to sell, and the U.S. reached an auto agreement with Japan in late June, hours before 100 percent tariffs on Japanese luxury car imports were set to go into effect.
The Bank of Japan added 5 trillion yen ($62 billion) in one-day Operations today. The BOJ has added 28 trillion yen to the financial system since March 14 after Governor Masaaki Shirakawa pledged to keep pumping cash into the economy to stabilize markets.
To contact the reporters on this story: Charles Mead in New York at cmead8@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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