Currency Trading - The Japanese Tsunami

By Author: Ben Finance
Total Articles: 3
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When the earthquake, tsunami, and nuclear reactors' semi-meltdown problems hit Japan on 11 March, many expected the yen to plummet dramatically in value, but the opposite actually happened. The yen rebounded from a low of 76 to near 80. The G-7 then acted to devalue the currency, which pushed the yen to 82. It has since fallen back to near 81.

To risk enough in the Forex to make huge amounts, you also have to be able to lose huge amounts and continue trading. Anyone can see that a move from 84 yen to the USD to 76 could earn you substantial returns. The trick is to see the correct thing. In the first day or two of the earthquake's aftermath, most of the pundits interviewed on CNBC got the direction of the move wrong, and have since vowed trying to predict these moves.

With other world events, it is very tough to foresee when exactly the yen carry trade will unwind more (risk off). This would effectively mean people would buy the yen, and thus strengthen its place in the market. Even ...
... considering Japan alone, it is very challenging to say when the nuclear reactors disaster will promote a risk-off attitude.

It is virtually impossible to determine when Japanese industry will restart in an invigorated manner. Such a restart has already been delayed once. It is hard to say when electrical problems will be effectively dealt with. At least 10% of Japan's electrical power has been semi-permanently destroyed. It is largely speculative to determine when parts from a plethora of manufacturers will become a giant issue to more complex manufacturing tasks (companies). Also, questions have arisen regarding when the government will stop feeding hundreds of billions dollars in liquidity into the Japanese markets and when insurance companies (and repair companies and/or even the government itself) will decide it is time to repatriate huge sums of money. Again, the debate is fierce on when the G-7 will act to manipulate the yen. Post quake and tsunami, It is unclear what the longer term Japanese monetary and fiscal policies will be. If you can understand many of these dramatic changes, you may get lucky whilst trading Forex. However, the general consensus is that the longer-term direction of the yen is going to be weakening.