Yen Strengthens After Earthquake, Tsunami Warning Spur Carry Trade Unwind

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  • Posted on April 7, 2011


    The yen strengthened on speculation traders will reduce investments in higher-yielding assets funded by the currency after a magnitude 7.4 earthquake hit 215 miles northeast of Tokyo and a tsunami warning was issued.

    The Japanese currency rose against all 15 of 16 of its most-traded counterparts except for the Brazilian franc. The yen often gains in time of global turmoil in anticipation Japanese investors will repatriate assets because the country’s export- reliant economy doesn’t need foreign capital to balance current accounts.

    The yen strengthened to a post-World War II high of 76.25 versus the dollar after a March 11 quake and tsunami that killed or left missing 27,000 people. The gain prompted Group of Seven nations to jointly sell the yen on March 18 for the first time since 2000 to prevent the surge in the currency from hindering economic recovery efforts.

    “The yen strength was on the earthquake,” said Tim O’Sullivan, chief trader at FOREX.com, a unit of the online currency trading company Gain Capital in Bedminster, New Jersey. “It’s a mini re-creation of the macro move we saw where the yen strengthened for about a month. It was a buying opportunity.”

    The yen rose 0.6 percent against the dollar to 84.99 at 12:27 p.m. in New York, after jumping as much as 1 percent. Japan’s currency rose 0.9 percent against the euro to 121.41 and 0.6 percent against the Australian dollar to 88.75.

    Power Failure

    Carry trades using the yen to buy the currencies of Australia, Brazil and South Africa have returned about 35 percent since Dec. 31 on an annualized basis, compared with about 13 percent using the dollar, Bloomberg data show.

    The quake was measured at a depth of about 25 miles and struck about 11:32 p.m. local time near the site of last month’s quake, the largest on record in Japan, the U.S. Geological Survey reported on its website. Japan issued a tsunami alert for a possible two-meter wave.

    Today’s quake caused power failures in Sendai, Yamagata and Fukushima City, according to broadcaster NHK. Miyagi Prefecture reported no immediate damage from the quake, which caused the region to close highways, Kyodo said.

    Tokyo Electric Power Co. told reporters that the quake caused no new disruptions at the Fukushima Dai-Ichi and Dai-Ni nuclear power units. The Fukushima units were crippled by the March quake.

    To contact the reporters on this story: Allison Bennett in New York at abennett23@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

    Bloomberg/AC



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