Japanese futures are down about 2.5% this evening while S&P; 500 futures are off a modest .6%. The Yen surged at the Forex open but has now retraced most of the move.

Crude is down about $1.50 and gold is up around $7. Of these moves the Yen is the most interesting.

Yen Daily Chart

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Yen 15 Minute Chart

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Explaining the Yen’s Rise

I received several emails from people wondering why the Yen might rise given the Japanese government pledge to create “massive liquidity” as well as increase the deficit with “stimulus” money to repair the damage.

The answer in general terms is events of this type increase the demand for money. In this case, businesses and individuals affected by the earthquake need Yen, not whatever carry trade they may have been in.

There will be a repatriation of Yen for sure, although the magnitude is unknown.

Fundamentally, there is little reason to like the Yen, although significant short-term forces are in play. If the Yen does not rally in the face of increased demand, it could be a very telling signal.

Mike “Mish” Shedlock
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