BS: Dollar Declines as Investors Move Out of Safe Havens
Currency investors started to move back out of their ‘safe havens’ yesterday with most of the currencies moving higher versus the US dollar. The Japanese yen (JPY) was the biggest mover, setting a post-World War II high as money was repatriated back into the country. The biggest losers were the other side of the carry trades, the New Zealand dollar (NZD) and Australian dollar (AUD). The kiwi was down over 1%, and the Aussie dollar was down just .2% versus the US dollar. Things are still a bit dicey in Japan, and it looks as if at least one of the damaged reactors is going to meltdown. The Japanese are doing everything they can to cool the reactor complex, but radiation levels continue to hamper their efforts.
The Japanese continue to try and address the financial problems caused by the catastrophe by dumping huge amounts of liquidity into the Japanese markets. One reader asked how the yen could be appreciating when Japan is in the midst of creating so much new currency. Japan has (or had) one of the largest currency reserves in the world, and it has used these reserves in years past to intervene in the markets. So the injections of capital that the BOJ is currently making is not ‘new’ money, but is reserves which they had been holding. The yen is appreciating because Japanese individuals, corporations, and even the major insurance companies have been buying up yen in preparation for the re-building which will begin soon. This repatriation has triggered other investors to exit ‘carry trades’ which traditionally involved investors selling yen and buying Australian or New Zealand dollars. Carry trade reversals are making the yen even more expensive.
And the Japanese catastrophe looks to impact more than just the currency markets. I touched briefly on the falling TIC numbers yesterday, and suggested that the TIC data would likely increase this month due to safe haven buying. But these safe haven flows are usually short term, and one of the world’s largest holders of US Treasuries (Japan) has a real need to raise cash. Obviously the Japanese are going to be sellers of their US Treasuries in the aftermath of the earthquake and tsunami. I came across an excellent article by Jeff Opdyke, editor of the Emerging Market Strategist, who addressed this possibility:
