What will happen to the post tsunami Yen? A disaster of Biblical proportions has befallen Japan. Nuclear plants are in danger of meltdown. Trading is halted again and again on stock exchanges in Japan as prices plummet. Much of the Northeast of Japan enters its fifth day without electricity and fresh water. All of this happens in the aftermath of the worst earthquake to hit Japan in known history. The 8.9 quake on the Richter scale caused a tsunami that washed boats, houses, and cars before it as it rushed inland. Published photos of the aftermath are truly horrifying. There is an understandable urge on the part of many to either shut the images out or our minds or to focus entirely on the immediate humanitarian dilemma of so many people. However, for those entrusted with carrying on the work of the world despite such obstacles one issue will be the state of the post tsunami Yen. It may seem incorrect to be thinking of Forex technical strategies at a time when so many are suffering. But, for those doing business with Japanese companies, such as selling American grain and other food stuffs to the Japanese market it is essential to deal with the issues that will drag the Yen down or raise it up.
Prior to this terrible natural disaster Japan has gone through a period of relative economic stagnation. This situation was preceded by a nearly unrivaled economic boom during the decade preceding 1990. At that time Japanese companies were buying assets throughout the world using a high priced Yen. When the problems of Japan’s banking system came to light their strong economy did not collapse but went stagnant. Its companies continued to supply the world with products but the low interest rates that Japan used as economic stimulus made the Yen the focus of an international carry trade. Now where will the post tsunami Yen go? For this we should look at the factors that will directly affect the Yen and the factors that will affect competing currencies. For example, factors that have caused the downward direction of the Euro will not go away because of Japan’s misfortunes. The USA will not suddenly resolve its national debt problems either.
How to trade Forex successfully is always to understand the fundamentals that drive the price of a currency in relation to others and to understand the technical factors the make the market fluctuate. The fundamentals are very grim right now in Japan. There is the specter of nuclear power plants melting down and releasing radiation. Whether the situation gets that bad or not damage to the several plants currently in the news could threaten the ability of Japan to generate electric power. This could cause rolling blackouts and reduce industrial production. With reduced industrial output the post tsunami Yen could suffer. The other side of this is that in this world of integrated economies when the third largest falters the effects will be felt elsewhere. Japan is a big consumer of products produced elsewhere and has a $300 Billion USD bilateral trade with China. What will happen to the Yuan as a result of the same factors that drive the post tsunami Yen? The point of this is that in order understand and trade the Yen in this situation the trader needs to follow fundamentals and technical factors closely. Using options trading will probably be a wise idea in order to contain risk. Speculators will be able to sit out the trading if the situation becomes to uncertain but those assigned the job of hedging currency risk in trading with Japan will need to stay the course.
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