Thursday, March 17, 2011

tsunami affect on US dollar yen

Just read an excellent comment on how tsunami as affected the appreciation of Japanase Yen against the US Dollar.

Why is yen appreciating against the US dollar?

Japan is a very large holder of US government treasury. Many large Japanese insurance companies own US treasuries. For example, Nippon Life Insurance Company was once the largest single holder of US treasuries.

With the devastation in Japan, claim amount is going to be very very big. Since insured party is in Japan, the payout is going to be in Japanese yen. The insurance companies that held much of the capital in US dollar is going to have to convert the denomination back to Yen in preparation for the payout, therefore the insurance companies are going to sell their US treasury holding. This has the same as shorting USD and buying JPY. Also called "repatriation".

According to US treasury, Japan is the second largest foreign holder of US debt, after China.

If you study the data table, you'll notice Japan had been buying US debt for the past year.

Now take away Japan as purchaser of US debt, and add Japan selling of US treasuries, we get USD/JPY flash crash.

The comment came from "counter measure" on Turd Ferguson blog on silver which is an amazing blog and who I followed form Zero hedge after being so accurate in his predictions in silver prices.

I am still not sure why this is having a negative affect on the silver and gold prices as you would think when a currency goes lower then commodities would go higher. Unless there is severe panic and main players buying silver and gold are caught in the headlights at the moment.

The affect is also happening in the NZ and AUD dollar. Logically you would also think that once japan people/institutions sell the assets overseas they would convert it into real assets not the yen so why not gold/silver. This has to be positive factor going forward for commodities prices and metals.


Anonymous intrinsic value said...

BOJ has already expanded their QE program from 5 to 10 Trillion Yen (120billion), to have the scale of QE 2 in the US, they need to implement the full size 30 Trillion Yen. As the government already indebted up to 200% of GDP, they are treading a fine line going forward. Japanese corporate, government and individuals own up to 850 billion worth US Treasuries. If they need to dip into their savings for reconstruction. Keep an eye for the yield curve on US debts.

10:31 am  

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