Many banks and brokers in Japan not fully operational
Written by Sean Lee
March 14, 2011 at 01:43 GMT

Another obvious effect of the disaster in Japan is that buildings are without power or are unsafe to enter. This means that many banks and brokers are unable to operate as normal. This will also greatly increase volatility.

The New Zealand experience of recent weeks would suggest that the ultimate effect of the earthquake on the JPY will be negative. There may be some short term inflows but once they are taken care of, the JPY should weaken.

The great unknown in the whole USD/JPY equation is the positioning of options books. The moves below 81.50 and 81.00 earlier today were caused by very large stop-loss orders from options players. The orders below 80.00 are supposed to be ‘huge’ and with volatility currently at elevated levels, we could see these stops threatened before the JPY-weakening begins.

JPY traders are probably feeling a bit punch drunk after this morning’s moves and now we await the BOJ monetary policy meeting and what course of action it may take in the aftermath of the earthquake and tsunami.

It will probably be a few hours yet before we hear anything definite but further monetary easing is a possibility. The meeting has been brought forward and cut from two days to one, so the BOJ is obviously eager to get it’s policy steps into the public arena asap.