There has been much talk over the last few days of the yen reaching a “record high”. It has done no such thing.
As Jonathan Allum of Mizuho points out, it might have hit a high against the US dollar, but this has rather more to do with the weakness of the world’s increasingly feeble reserve currency than with the yen itself.
Look at it on a trade weighted or effective basis and you will see that the yen is now rather weaker than it was for much of the 1990s.
With that in mind it is worth looking at the reason everyone gives for the strength of the yen pre today’s interventions – repatriation. Consensus on this has it that the yen soared post both Kobe and the most recent quake because so many companies had to sell investments abroad and bring the cash home (buying yen as they do so) so that they could pay their whopping reconstruction bills.
I seem to remember some mutterings from officials around the time of Kobe that this simply wasn’t the case – the yen rise was even then more of a dollar slide. And Allum now suggests it won’t be the case this time around.
He points to a comment from an official at the Ministry of Finance to this effect, but backs the argument up by noting that for “seasonal reasons” there is always some net selling of foreign assets in March. But if you actually look back to March 1995 (the time of the Kobe quake) you will see that there was less in this month than there was in either March 1994 or 1996. It seems that “repatriation is just another urban myth”.
Forecasting currencies is even more of a coin toss than most things in financial markets, but add this to the huge amounts the G7 banks appear to be prepared to throw at the problem and I’d say an overly strong yen is the least of the things investors have to worry about at the moment.