Moneycorp: Yen higher as insurers repatriate assets [14/03/2011]

Moneycorp: Yen higher as insurers repatriate assets [14/03/2011]

The CEO of a multinational firm has told a group of Americans that in Britain “the food is terrible and the women are not very attractive.” Even ignoring the pot/kettle aspects of his comment, coming from the boss of fast-food eatery chain Burger King the irony is rich indeed.

As is the way the yen has responded to Japan’s tsunami tragedy. Having initially sold the currency investors piled back into it on Friday, sending the dollar one yen lower by close of business. The pound was down by one and a half yen. Various suggestions have been advanced as to what drove the buying. The most compelling is that insurers – Japanese and others – sold international investments to buy the yen they know they will need to settle claims over coming weeks and months. There is also the suggestion that Japanese investors in general are inclined to repatriate assets in times of trouble. It was not, as first suspected, a flight to safety. Had it been so the Swiss franc would not have fallen back against the euro. The yen has dipped from its highs this morning, dented by a 6% fall in the Tokyo stock market that prompted the government to add ¥15 trillion (£114 billion) liquidity and by an idea that the Bank of Japan will be on the case if the yen threatens to become stronger.

There were some economic data released on Friday but nobody paid a great deal of attention. An acceleration in UK factory gate prices from 5.0% to 5.3% did nothing whatsoever for sterling despite its implications for higher inflation: investors were still feigning disappointment at Thursday’s failure by the Bank of England to deliver a surprise rate increase. The Canadian dollar nodded in the direction of an unexpectedly low 15.1k increase in employment by falling back by half a cent but it had recovered the lost ground by teatime. US retail sales were close to target with monthly and annual rises of 1.0% and 0.7%. The six point fall in the University of Michigan’s consumer sentiment, which took it down to 68.2, had surprisingly little negative impact on the dollar. Well, none in fact.

Even a speech by Bank of England governor Mervyn King had no effect on sterling. It seems the governor can no longer be relied upon to talk down the pound. On Friday at the Stanford Institute he stuck to a theme of global rebalancing and anti-protectionism. Today he is speaking again on the same subject but it hard to imagine the audience hanging on his every word as he addresses the Japanese Bankers’ Association in Tokyo.

There is not much else on today’s agenda. It doesn’t really matter now that industrial production in Japan increased by 1.3% in February and there was a poignancy in the half-point slippage of Japanese consumer confidence to 40.6. All that remains is Euroland industrial production and a supremely unimportant capacity utilisation figure from Canada.

Investors have had the weekend to work out the wider implications of the situation in Japan. Following the fall in Tokyo shares it is not a surprise to see European stock markets opening lower. Quite how the commodity currencies will fare is open to debate. The idea that the natural disaster will damage Japan’s economy, thus reducing demand for commodities, is no stronger than the counter-argument that rebuilding will create a demand that would not otherwise have existed. The prognosis for sterling is equally hazy, with the interest rate factor dormant for another nine days until the MPC minutes come out. Watch out for the yen. There can be little doubt that undue strength will attract the attention of the BoJ but you can be sure there are folk out there with ambitions to test the record low achieved by USD/JPY back in 1995. It isn’t far away.

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