Tsunami Fallout: Japan bringing money home to rebuild

Unless you have been living in a cave, you're probably aware of the Tsunami that hit Japan this weekend.  In case you missed, below are two videos of the disaster (from zerohedge)





Tsunami Fallout

Reuters reports about Japan bringing money home to rebuild.

Japan brings money home to rebuild
4:38pm EDT
By Burton Frierson

NEW YORK (Reuters) - Shaken by the prospect of nuclear meltdown after a devastating earthquake and tsunami,
Japanese investors will dump overseas assets on Monday and bring their money home to help finance reconstruction.

Positioning for this could send the dollar plummeting versus the yen on Monday and lead to a sharp slide in Treasuries since U.S. government bonds are a favorite asset of Japanese investors, market analysts said.

Stocks also are likely to come under pressure.

Japanese insurers will probably sell some of their most liquid foreign assets such as U.S. Treasuries so they can respond to the worst disaster since World War Two.

The crisis could lead to insured losses of nearly $35 billion, risk modeling company AIR Worldwide said, making it one of the most expensive disasters in history and nearly as much as the entire worldwide catastrophe loss for the global insurance industry.

Traders braced for just such an outcome on Friday, when the yen surged and Treasuries fell. The Bank of Japan probably will add money to the system to limit the liquidation of assets. But
the big question remains of how much follow-through selling is yet to come.

Dan Fuss, the vice chairman of $150 billion Loomis Sayles, told Reuters on Sunday that his best guess is that
Treasuries will continue to see losses.

Because Japan is the second-biggest holder of U.S. government debt and they have nearly $900 billion in dollar reserves, Fuss said
Japan will likely use reserves for rebuilding.

"A big buyer of bonds is taken out of the market," Fuss said, adding that Japan "will be less able to add to their reserves and less able to buy Treasuries."

TAKING STOCK

Japan's crisis may also provide a new reason to press on with the long-awaited retreat in stocks.


Prime Minister Naoto Kan described
the crisis as Japan's worst since 1945, as officials confirmed that three nuclear reactors were at risk of overheating, raising fears of an uncontrolled radiation leak.

The disaster may also put some pressure on the Bank of Japan, which said it was cutting short its upcoming two-day meeting to just Monday.

It can do little with rates per se, even if it wanted to, because the current target is just 0.05 percent. It has, however, promised to ensure market stability.

FIGHTING YEN STRENGTH

Many expect the Bank of Japan to pump even more liquidity into the system, and for the government to try to fight any rise in the yen. A strong yen would add to the economic woes of export-dependent Japan as it struggles to recover from the disaster.

"I believe we have reached a critical point where
the disaster is so severe the BOJ will engineer liquidity mechanisms that will reduce the likelihood of forced selling in the Treasury market," said Christian Cooper, head of U.S. dollar derivatives trading at Jefferies & Co. in New York.

Even if the BOJ does undertake massive liquidity injections, an action expected before the U.S. Treasury market opens on Monday, most analysts still expect to see further selling pressure on U.S. Treasuries, at least initially.

My reaction:  After devastating Tsunami, Japan is bringing money home to rebuild.

1)  Japanese investors will dump overseas assets on Monday and bring their money home to help finance reconstruction.  Insurers will probably sell some of their most liquid foreign assets such as U.S. Treasuries.

2)  Positioning for this could send the dollar plummeting versus the yen on Monday and lead to a sharp slide in Treasuries.

3)  The crisis could lead to insured losses of nearly $35 billion, one of the most expensive disasters in history.

4)  Three nuclear reactors were at risk of overheating

Bank of Japan

1)  The disaster is so severe the BOJ will engineer liquidity mechanisms that will reduce the likelihood of forced selling in the Treasury market.

2)  Even if the BOJ does undertake massive liquidity injections, most analysts still expect to see further selling pressure on U.S. Treasuries.


Conclusion:  As a result of the Tsunami, Japan, a big buyer of US bonds, has been taken out of the market.  The US financial system has moved a little closer to collapse.

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One Response to Tsunami Fallout: Japan bringing money home to rebuild

  1. Robert says:

    Just throwing this out there.. what if someone created the earthquake using mini nuclear bombs? It's pretty convenient that the reactors are now exploding as any radiation would get blamed on that... hey they've nuked Japan before.. why would anyone do such a thing now? Oil..

    Cosmo's 220,000 b/d Chiba refinery and JX's 145,000 b/d Sendai, 270,000 b/d Negishi and 252,500 b/d Kashima plants are all shut due to the earthquake.

    TonenGeneral -- under US oil major ExxonMobil -- however, is understood to be covering its import needs from ExxonMobil's system, after shutting its 335,000 b/d Kawasaki refinery.

    That's quite alot of demand reduction for crude oil (over 1million barrels per day) and indeed it has dropped the price of WTI crude back to just under $100/barrel.

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