Yar – that is very true.

It is useful to try and understand things that will make a currency move, and what it is telling you about macroeconomic conditions – but I wouldn’t want to be in the game of predicting currency movements themselves …

The resulting pressure forced the $ down and eventually the break of 79.75 was made. Once through there it fell very quickly to the low 76s. At the same time the NZ$ and OZ$ fell as cross trades went through. The break of 79.75 triggered massive amounts of option strikes which have been there for ages, not just in $Yen but in all the Yen crosses.

NZ/Yen fell 10% from 60.50 to 54.50……and now is at 61.35.

What does that tell us? Well it tells us that a lot of people lost money as option structures were knocked out; and that the market often overreacts to natural disasters. In this case the nuclear meltdown was a serious issue though at the same time it was unlikely the BOJ/MOF would have allowed a serious fall to continue.

In fact the NZ$ traded up to 75.70 on Friday, well above the 73.50 level pre-earthquake. Possibly earthquake related flows plus the usual short positioning and thin liquidity have exacerbated the move.

Which all goes to show that predicting currency moves is a mugs game.

/www.tititudorancea.com/z/jpy_to_sek_exchange_rates_japanese_yen_swedish_krona.htm

There was a blip in Yen-SEK from 13 to 18 March, but the cross rate is roughly back where it was. Similar story with the GBP (Sterling).

I’d guess you follow currency moves a bit closer than I do. Buy your outflow cessation story.

1) Japan as a nation is a chronic saver, so that there is normally a continuous outflow of investment money, which works against the yen’s natural tendency to rise. When things get hairy, people are inclined to keep their money closer to home – the outflow tap is turned off, and that stabilising influence on the yen disappears.

Eric Crampton suggests repatriation flows from Japanese insurers. (My cruddy old computer stops me from replying on his blog.) I don’t think it’s insurers per se, as I gather they’re already loaded with yen-denominated assets. And as I’ve said, it may not be due to inflows, just the cessation of outflows.

2) The move was so violent because the Japanese are heavily into margin trading of currencies, and they are die-hard contrarians. So they would’ve been buying the NZ dollar on the way down, until they hit their loss limits on the 15th and had to sell up. For a more spectacular example of this, look at August 2007, when the accumulated NZ dollar positions were much larger than today.