The Financial Impact of Japan’s Earthquake on the Yen

Tuesday March 29, 2011

In the wake of such a horrific and far reaching natural disaster, it is perhaps impossible to say what effects the Japanese earthquake and resulting tsunami will have on the people of Japan. They may be well prepared for earthquakes but this was an enormous one – measuring 8.8 on the Richter scale – by anyone’s standards.

At times like these everything but the most important things is flung to one side. Perhaps the yen was one of those things, at least to begin with. Understandably the value of the yen dropped as soon as news became known about the earthquake. We doubt though whether anyone was too concerned about that.

But perhaps another story can be told by the fact that once the news had broken and the yen had depreciated in value against many major currencies, it then went on to gain in value. It is thought that many investors were looking on it as a haven for the future. It seems awful and mercenary to think that people might be investing in the yen purely because there will be a lot of damage to rectify once the situation settles down in Japan once more.

It does show us how the natural world can have a significant affect on the currency markets though. Sometimes they may react in ways we could not expect, and at other times we may see how investors act in ways we should have guessed they would act in.

Needless to say most people in the world will now be looking away from the currency markets and towards the events in Japan. This is an earthquake that has affected many other parts of the world in a physical sense, as the tsunami affected other Pacific Ocean countries as well, albeit to a lesser degree. But it has affected us all profoundly in other ways, and we can but hope that Japan recovers from it.

The currency markets may well fluctuate in response to this natural disaster in the coming days. But it is doubtful as to how many people will be interested in it.