(My latest story for Asia Times) Record-high yen assaults Japan

Very, very good news. This afternoon I just got a phone call from my relative in Miyagi Prefecture. He and his mother survived. I was pretty much relieved to hear they are safe.

Mitsunori Goto, 48, my relative, who survived the earthquake one week ago, said his car was swept by the tsunami but he managed to escape alive. At that time, he was in Ishinomaki City of Miyagi. He gave me a phone call today. He is a former SDF member.
Also, my late grandma's house located in Tome City of Miyagi did not collapse during the earthquake. My mother and I always go to this house every Obon season around mid-August.

Here is my latest story for Asia Times. I criticized speculative FX trading, which took advantage of nuke fears in Japan.  Cheers, Kosuke

Record-high yen assaults Japan
 By Kosuke Takahashi

TOKYO - Greed and fear move markets, one popular proverb on Wall Street says. Speculative market players, taking advantage of greed and fear, are now assaulting Japan, seeking to gain in the wake of the country's worst recorded earthquake, subsequent big aftershocks, massive tsunami, tremendous loss of life and nuclear panic.

With nuclear fears on the Fukushima Daiichi nuclear plant rising, speculators are aggressively buying the Japanese yen amid　cat-and-dog surging demand for the currency, pushing up the yen to a record post-World War II high of 76.25 to the US dollar on early Thursday in Tokyo. The yen at this level will likely hit the profitability of Japanese exporters such as Toyota and Sony in coming months, although it can help lower prices of imported crude oil and other raw materials.

Why do speculators buy the yen, instead of selling it, as geopolitical risks of Japan on nuclear radiation are rising and the Japanese economy is expected to slow down in coming months due to massive earthquake damage?

The prevailing notion in the markets is that global money managers and hedge funds, as well as Japanese mom-and-pop investors, are increasingly seeking to reduce investment risk due to the global downturn in stocks, and that those investors are unwinding so-called yen carry trades, which under less volatile financial times allow traders to capitalize on Japan's ultra-low interest rates to buy higher-yielding assets in Australia and elsewhere.

But the real reason is not a simple yen-buying based on risk aversion. They are actually taking big speculative risks to bet on the yen's further rise by buying it. They simply buy the Japanese currency, as they think that people want to buy the yen in times of emergency world-wide.

Yen-buying and losses in the stock markets started to pile up late morning New York time on Wednesday after European Union Energy commissioner Guenther Oettinger warned of "further catastrophic events" in the coming hours in Japan, saying they "could pose a threat to the lives of people on the island".

He said that one of Japan's nuclear plants was "effectively out of control", and that the situation could continue to deteriorate. Europe's energy chief later played down his warning, as his spokeswoman said his comments were based on media reports, his personal fears and so forth after the comments alarmed global financial markets.

Then, losses in the stock markets and yen-buying accelerated after the United States Embassy in Japan urged American citizens living within 80 kilometers of the quake-hit Fukushima nuclear power plant to evacuate as a precautionary measure.

Nuclear pundits around the globe have mentioned Japan’s possible nuclear crisis as being equivalent to the 1986 Chernobyl accident. They seldom mention a basic but important fact. Unlike Chernobyl, Japan managed to automatically shut down all the nuclear power reactors in Fukushima immediately after the earthquake on March 11. This is quite different from Chernobyl.

"The yen is being bought as nuke fears are exaggerated abroad," said Yuji Saito, director of the foreign exchange department in Tokyo at Credit Agricole Corporate & Investment Bank. "By taking advantage of those exaggerated fears, speculators aimed to trigger massive stop-loss orders of yen-buying at the level of a previous record-high of 79.75 yen against the dollar. They succeeded in doing so by triggering those stop orders amid very thin trading between New York and Tokyo times."

Saito said now that speculators had finished hitting another record-high of the yen against the dollar, they fear intervention by the Japanese authorities in the currency markets by selling the yen, and have already started to sell the yen by riding on possible future intervention by the Ministry of Finance and the Bank of Japan.

"Crucially, FX [foreign exchange] carry positions have likely been wiped out, without a severe jump in volume, so overall, conditions for risk appetite/releverage actually appear to be reasonable and there will be investors with strong interest in buying cross-JPY," UBS wrote in a report on Thursday. "Of course, if the news flow deteriorates yet again, the market could yet turn, but overall last night's price action seems very FX-specific and stops/barriers driven than any indication of fundamental fear-induced deleveraging."

Expectations are rising that central bank officials and the Group of Seven finance ministers will decide to assist Japan's recovery efforts and also approve, or at least understand, Japan's currency intervention at an emergency meeting by phone on Friday. The Group of Seven is composed of the United States, Japan, Germany, France, the United Kingdom, Italy and Canada.

"Japan will be forced to sell US Treasuries if it really needs the costs of its reconstruction," Saito said. "This would be severely damaging to the US. So I think the world led by the US will help Japan this time."

As of January 2011, Japan holds $885.9 billion of US Treasuries, the second-largest holder, following China's $1.15 trillion.

Kosuke Takahashi is a Tokyo-based Japanese journalist. He is a regular TV commentator at Nikkei CNBC in Tokyo. He previously was a currency reporter for Bloomberg News in Tokyo under the pen name of Kosuke Goto.

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