The 8.9 magnitude earthquake struck Japan Friday afternoon, causing damage in Tokyo and sparking warnings of a six-meter-high tsunami along the country's northeastern coast.
"Right now, the markets are in a kneejerk reaction. The U.S. dollar is likely to rise toward the 84 yen level, but could stabilize as the quake comes on a Friday and the market may wait for a better assessment of its damage and impact," a trader at a Singapore bank said. "There may be a sharper correction on Monday and over the coming week, depending on what emerges over the weekend."
Powerful aftershocks have been felt after the most severe shaking had subsided. No loss of life or severe collateral damage was immediately reported in the central Tokyo area, although high-rise buildings could be seen visibly swaying as the ground continued to shake.
Michael Blythe, chief economist at the Commonwealth Bank of Australia, says it's too early to say if there will be any long-term economic damage.
"It's the usual stampede toward safe havens against a backdrop of flighty markets," Mr. Blythe said, noting that major earthquakes in Japan prior to this haven't had a major impact on the regional economy. "Japan is well set up to deal with this kind of thing."
Late Friday in Tokyo, the dollar was at 83.12 yen from 82.98 yen late Thursday in New York. The ICE Dollar Index, which tracks the U.S. unit against a trade-weighted basket of currencies including the yen and euro, was at 77.248 from 77.264.
Before news of the Japan quake emerged, the euro clawed back some ground against the dollar and yen in Asia Friday, as investors took a lull in news concerning unrest in Saudi Arabia as an opportunity to buy back the risk-sensitive common currency.
But dealers said any further gains in the euro should remain limited for now as market participants refrain from making larger bets before protests planned for later in the global day in the world's largest oil producer. More aggressive euro buying is also unlikely after Moody's Investors Services downgraded Spanish government debt Thursday, highlighting the continued risk of fiscal problems heading into a summit of euro-zone leaders later in the global day.
"If we get through to the end of New York trade and there haven't been any major incidents with the protests in Saudi Arabia, the mild euro buying could continue, but it's a big if, and no one wants to buy aggressively before seeing how things play out," said Satoshi Okagawa, a senior foreign exchange trader at Sumitomo Mitsui Banking Corporation.
The euro was at $1.3818 compared with $1.3799 late Thursday in New York. It traded hands at 114.87 yen, up from 114.36 yen.
Chinese indicators released in the morning, showing continued strength in the country's economy, an engine for global growth, gave the euro an additional bump, dealers said.
Industrial output rose 14.1% in the January-February period, above expectations for a 13.3% gain. The country's consumer price index rose 4.9% in February from a year earlier. While that was slightly above expectations for a 4.8% rise, and more than enough to feed continued speculation about further monetary tightening, currency traders said they were more focused on the positive signal the data overall sent about the health of the Chinese economy, offsetting some concern after data Thursday showing China had logged its first trade deficit in 11 months.
"In contrast with yesterday's China trade deficit, which caught traders by surprise and had sent the euro and the Australian dollar lower, we are seeing the opposite move today," said a manager at a foreign-exchange margin company in Tokyo.
The yen escaped unscathed from the latest political setback for the Japanese government, as investors took a wait-and-see approach. Already hamstrung by low approval ratings and a divided parliament, Prime Minister Naoto Kan admitted Friday his fundraising organization received donations from a foreign national, which would violate Japan's political funding law if done knowingly. But Mr. Kan said he had no knowledge that the person was not a Japanese citizen. For the latest updates PRESS CTR + D or visit Stock Market news Today
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