Fear of Major Nuclear Catastrophe Sends USD/JPY Under 80

USD/JPY briefly dipped below 80, as a European official said that the situation in Japan’s reactors is out of control. While the report was later denied, it’s clear that the reactors at Fukishima are not too far from a meltdown.

The forces driving the yen higher are speculations that the immense tragedy will cause Japanese firms to sell assets abroad and bring money back home. These repatriation funds are necessary for paying insurance and for rebuilding the country. While the real scale of necessary repatriation funds is unclear, speculation sends the yen to almost all time highs.

At the current levels, USD/JPY is already at a fresh 16 year low. It dipped below the lows seen after QE2 was announced in November. Dollar/yen still didn’t reach the intra-day all time lows reached back in 1995 – 79.75. This low level was recorded after the devastating Kobe earthquake that killed over 6000 people.

But the current intra-day’s low of 79.97 still has a psychological impact, as it’s below 80. Support is naturally at 79.75 and resistance is at 80.40, which cushioned falls since November, and now has a different role.

The Japanese economy was weak even before the earthquake, and when the current chaos fades away, the yen is expected to weaken – USD/JPY is expected to rise.

Further reading:

• The yen undercurrents – analysis of all the forces moving the Japanese yen.
• USD/JPY Forecast – Technical levels and economic indicators moving the currency.