The earthquake was followed by a devastating tsunami. The Yen reacted to the downside initially but afterwards jumped in the market, erasing weekly losses. The damage and consequences of the catastrophic event are not yet know and the situation in affected areas is still dramatic. A nuclear emergency has been declared and several big aftershocks shook Japan.
Market participants will focus over Japan during the weekend. The Bank of Japan announced that next Monetary Policy Meeting, to be held on Monday will finish on the same day, and not on Tuesday as it was previously schedule. Once open on Monday, markets will have a better analysis of earthquake’s impact.
Euro jumps on agreement
The Euro rose sharply across the board in the last hours of trading on Friday after leaders of the Eurozone agree on a pact that will probably be officially sign during a European Union summit on March 24. The “pact for the euro” is designed to coordinate economic policies across the region and to improve its competitiveness. If signed, the road would be clear for an agreement over the next rescue fund, that will replace in 2013 the current European Financial Stability Facility.
The EUR/USD rose from 1.3775 reaching levels on top of 1.3900 at the end of the session while EUR/CHF erased losses and soared to 1.2925, after having reach a 1-week low at 1.2825.
Following the 8.9 magnitude earthquake and as a tsunami of 10 meters that engulfed towns along the northern coast that hit Japan early Friday, most of the risk aversion, come from the fact that the Fukushima No. 1 power nuclear plant was on fire; Japanese officials have admitted that a key cooling system at a nuclear reactor was not working properly, with the country declaring a nuclear power emergency; latest news worsen the picture as fire has come out of control as the cooling system of the plant failed along with the backup system.
In a desperate attempt to solve the problem, Japanese authorities will release radioactive vapors into the atmosphere to prevent a nuclear power plant from exploding; the country's nuclear safety agency says pressure inside the reactor at the mentioned power plant has risen to 1.5 times the level considered normal.
The yen gained the most against greenback since past August, with the cross below the 82.00 mark as investors speculate insurance companies and investors will have to buy back yen to pay for damages.
Meanwhile the situation seems to have eased in the US west coast, as the expected giant waves predicted to inundate beaches after the Japanese earthquake failed to materialize. Evacuated residents in Hawaii are now allowed to return home, after waves up to 8 feet high caused some damage in Hawaii, but the surge was much lower than expected.