LONDON (MarketWatch) — The Japanese yen rebounded strongly versus major rivals Friday as investors turned their attention to potential repatriation flows and the yen’s traditional safe-haven role after a historic and deadly earthquake and tsunami hit northeast Japan.
The yen initially tumbled after Japan’s most powerful earthquake in 100 years hammered the northeastern part of the country, triggering a 10-meter-high tsunami and setting off a series of tsunami alerts, including warnings for Hawaii and the U.S. West Coast. Full story on the Japanese earthquake.
The currency soon rebounded, however, as investors speculated that the quake would trigger a substantial round of capital repatriation, said Jeremy Stretch, currency strategist at CIBC.
In recent action, the U.S. dollar (USDYEN 82.2100, -0.6900, -0.8321%) traded at 82.19 yen, down from 82.95 yen in North American trade late Thursday and well off the ¥83.30 intraday high scored in the immediate aftermath of the temblor. The euro changed hands at 113.27 yen down 1.1% against the Japanese unit.
Jane Foley, senior currency strategist at Rabobank, said the yen rebounded as the currency reasserted its traditional safe-haven role in times of crisis. The yen is also buoyed by the country’s current-account surplus and the fact that Japan, thanks to deflation, still offers positive real yields.
The Nikkei index, however, is expected to remain vulnerable to near-term weakness, which could serve to leave the yen open to downside pressure in coming weeks, Foley said. Over the longer run, however, reconstruction efforts could serve to boost economic activity, which could prove a positive for the currency.
Foley said that the yen is likely to see increased volatility Friday and in coming weeks but added that the yen’s rapid pullback from early losses may signal that the negative impact on the yen may not be as marked as would normally be expected.
Meanwhile, quake-related concerns served to further dent investor appetite for equities and other risky assets amid ongoing worries over turmoil in Libya and the Middle East, putting pressure on risk-correlated currencies while providing the dollar with some support versus the euro and other currencies.
The dollar index (DXY 77.26, -0.01, -0.02%) traded at 77.297, little changed from 77.308 late Thursday.
The euro (EURUSD 1.3780, -0.0016, -0.1160%) traded at $1.3776, little changed from $1.3774 versus the dollar on Thursday. Euro-zone leaders are set to meet in Brussels later Friday to continue work toward a comprehensive agreement aimed at addressing the region’s long-running debt problems. Read about the meeting of euro-zone leaders.
The Friday meeting is expected to focus on reaching a deal on watered-down version of the competitiveness pact introduced earlier this year by France and Germany.
“Though important, this pact will not immediately address any of the short-term issues driving the crisis. But one school of thought says if smaller countries agree to something favored by Germany, Germany will be more willing to strengthen” the European Union’s bailout fund when European Union leaders meet later this month, said Elsa Lignos, currency strategist at RBC Capital Markets.
“Underwhelming progress” would be negative for the euro, Lignos said.
The British pound (GBPUSD 1.6005, -0.0051, -0.3177%) changed hands at $1.5992 versus the dollar, down slightly from $1.6058 versus the dollar.
