Pound Japanese Yen : GBP/JPY Rate Rises in Aftermath of Tsunami as Bank of Japan Announces Massive Injection of Liquidity

14 Mar 2011 at 6 AM - Written by John Cameron

STORY LINK Pound Japanese Yen : GBP/JPY Rate Rises in Aftermath of Tsunami as Bank of Japan Announces Massive Injection of Liquidity

The Pound Japanese Yen Rate (GBP/JPY) is 131.93.

Japan continues to suffer the devastating effects of last Friday’s massive earthquake and subsequent Tsunami. The earthquake was the sixth most powerful ever recorded and along with the tidal waves which followed, has cost tens of thousands of lives and destroyed thousands of homes and factories in the North Eastern part of Japan.

The huge natural disaster has already had a dramatic effect on global markets. In the hours following the event, the Japanese Yen strengthened considerably against all of the majors, with GBP/JPY moving downwards by almost 2% by mid-afternoon in Friday’s European session. The buying pressure on the Yen was caused by Japanese companies repatriating funds from other currencies in order to meet immediate cash calls. The repatriation of funds also caused the Australian and New Zealand Dollars to strengthen in the hours following the quake because of the significant interests that Japanese businesses have in these countries.

The US Dollar also made immediate gains as it re-confirmed its status as the world’s reserve currency of choice during times of extreme market uncertainty, with GBP/USD briefly breaking below 1.6000.

The quake struck only an hour before Friday’s weekly close for Japanese stock markets, leaving insufficient time for the full impact of the event to be factored into prices. However, when Japanese equities markets re-opened this morning, many shares went untraded because of the selling pressure which they were experiencing. By the middle of Monday’s afternoon session, Japan’s benchmark Nikkei 225 index was down by over 6%, which equates to a paper-loss of over $150bn.

Policy makers in Tokyo have announced in the last few hours that they will inject JPY12trillion into domestic credit markets in order to assist with the huge re-building programme which lies ahead. The announcement of this massive asset purchase scheme has caused the Yen to weaken significantly against the majors in the early part of today’s session. This was probably the intention of the Japanese government, as they seek to actively weaken the Japanese currency in order to make Japanese exports more attractive to overseas markets.

News this morning of a second explosion in twenty four hours at the Fukushima nuclear reactor will elicit more fear in the markets. With tomorrow’s Bank of Japan policy announcement likely to contain details of further plans to loosen domestic economic policy, it looks like the Yen will come under severe selling pressure in the short-to-medium term.

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