The yen typically experiences an increase in value following historical disasters and political crises. However, this trend did not manifest after the earthquake on January 1 in Japan.
The yen witnessed a decline to its lowest point in approximately two weeks, reaching 144 yen per USD on Thursday.
This marked a decrease of about 3 yen since the close of 2023.
Throughout Japan’s history, the yen has tended to strengthen after earthquakes causing widespread destruction. Following the Kobe earthquake in January 1995, the currency appreciated by around 18 yen over a span of three months. In April of that same year, the yen achieved its highest value.
Immediately after the earthquake and tsunami on March 11, 2011, the yen reached 76 yen/USD, leading the G7 nations to coordinate efforts to mitigate the yen’s ascent.
The Japanese currency continued to touch 75 yen/USD in October 2011, setting a new all-time high.
In both instances, the forex market responded to the expectation of Japanese companies repatriating assets.
Anticipating that accident insurance companies would convert a portion of their assets into foreign currencies to fulfill compensation claims, forex traders sought to anticipate these actions by purchasing the yen.
The yen has experienced strength during geopolitical tensions, like the 9/11 attacks and North Korea’s missile launches, driven by speculative activities rather than significant asset transfers. However, following the recent earthquake in the Noto Peninsula on January 1, the yen depreciated. In December, expectations were rising that the Bank of Japan (BOJ) would abandon its negative interest rate policy in the first half of 2024. The recent disaster is now seen as reducing the likelihood of that happening.
Investors, who previously purchased yen with the aim of ending negative interest rates, are now selling, exerting downward pressure on the currency. According to Teppei Ino at MUFG Bank, there’s concern that the BOJ might miss the opportunity to normalize monetary policy if other countries initiate serious interest rate cuts.
The yen’s appeal as a safe-haven asset is diminishing amid the Russia-Ukraine conflict. Contrary to expectations, the currency is weakening as traders focus on the impact of rising commodity prices on Japan’s trade balance. With Japan’s interest rates remaining at historic lows, the yen has reached its lowest level in 32 years.
Ongoing downward pressure on the yen is evident as the absolute difference between Japan’s policy interest rate and that of the US exceeds 5 percentage points.
According to Nikkei.
By. Pham Thanh Bien
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