Behind the Yen's Surprising Strength

It was counterintuition writ large. Japan sustains a 9.0 earthquake that destroys whole swaths of the densely populated Pacific nation and creates a nuclear crisis that sends people and companies hundreds of miles away fleeing. In response, the Japanese yen soars to its highest level against major global currencies since World War II.

The surge of the yen was one of several signs that investors have confidence in Japan, despite earthquake damage estimated at 25 trillion yen ($309 billion). As of Mar. 23, the Nikkei 225 stock index had climbed 10 percent from its Mar. 15 low. Government bond yields have remained stable at just above 1 percent, meaning Japan can borrow money at low cost. And Japan's five-year credit default swaps—insurance that bond traders buy against the risk of default—are trading at just over 100 basis points, meaning it costs $10,160 a year to insure $1 million of Japanese government debt for five years. That's a relative bargain. Insuring the same amount of Ireland's debt costs $61,600 a year.