Oil prices↓ and ¥↑?

With the terrible events overnight in Japan one wonders how the Japanese economy is going to be affected. However it was interesting to notice what has happened to the Yen against the US$ and the price of oil.

The US$ dropped against the Yen – was ¥82.8 but now is ¥81.8. Reasons for this:
1. The flow of insurance pay-outs that will no doubt follow the earthquake/tsunami.
2. Companies repatriating funds as happened after the Kobe earthquake in 1995

Benchmark Brent crude oil contracts fell 1.1 per cent to $114.16. Reasons for this:
1. The closure of Japan’s refineries damped immediate demand for crude oil.
2. Considering Japan’s huge oil consumption, around 4.4 million barrels a day, investors feared the demand would fall after the disaster at least temporarily, triggering large scale of sell-offs across markets.

According to the FT in London:
Natural disasters can actually be positive for growth because governments spend to repair the damage. After the Kobe earthquake in 1995, the Nikkei fell about 8 per cent in the following five days, then recovered 5 per cent in the next two weeks.

In a broader sense this earthquake is probably the last thing that the Japanese economy needed – namely its ability to pay in order to get the country back to a growing level of economic activity. However, although Japan’s government is highly indebted its people are very wealthy and there are many ways that you can tap into this wealth.

It seems that oil prices will be downward until the damage in Japan is fully assessed. But there always remains the threat of further political turmoil (sorry about the pun) in the Middle Eastern countries.

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