The huge demand for funds will impact global currency markets

It is estimated that Japan's post-disaster reconstruction funds needed at least 100 billion U.S. dollars, accounting for 2% of GDP in Japan. In the huge demand for funds, the foreign demand for the yen has returned. In order to support reconstruction, the Japanese government will continue to issue bonds, the central bank to maintain the current accommodative monetary policy, open market through a series of measures to inject liquidity into the market.

First, the reconstruction will lead to the yen back, and maintain strong yen

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Japan's earthquake zone GDP output accounts for about 10%, the hardest hit is concentrated petrochemical, semiconductor, automotive and other important nuclear energy and industry, earthquake caused many factories suffered a severe broken ring. To re-production facilities, ability to quickly restore production operations, Japanese companies will realize some of the overseas assets in exchange for yen. The Japanese foreign exchange holdings, mainly U.S. dollars, it will be the key selling period of time thereafter.

Reconstruction of the yen will lead to the return of the yen exchange rate which is higher support one of the most important factor, but the yen exchange rate depend not only on the return of the yen, but also on the Bank of Japan policy. The long term, the yen will reflect the loss caused by the earthquake and reconstruction of the extent to compensate for the loss.

In accordance with the common sense of economics, a country that suddenly lost a lot of wealth, in the absence of changes in the case of other conditions, in the foreign exchange market, devaluation of national currency needed to reflect the loss of wealth. From the perspective of supply and demand in the foreign exchange market in the next period of time, due to the earthquake's destruction, the export capacity of Japanese companies fell, while the reconstruction work will increase Japan's import demand. Decline in exports, increased imports will increase Japan's demand for foreign exchange. Therefore, I believe that the yen is the rapid return to the dominant factor in the strong yen, and in the future, the yen exchange rate needs to be redefined to reflect the new fundamentals.

Second, Japan will continue to relax monetary policy

Earthquake in Japan will continue to loose monetary policy, mainly in two aspects. The one hand, the Bank of Japan will increase purchases of government bonds. Currently, the Japanese government's huge debt burden, relative to rebuild through the issuance of bonds to finance the government more inclined to the central bank to take measures to obtain the funds required. Broken ring because of the earthquake, the Japanese economy in the second quarter, or atrophy, although the reconstruction is expected to boost third-quarter economic growth, but the recovery of production capacity, particularly by destroying the resumption of the supply chain needs of time, which will leads to high reliance on exports of the Japanese economy's GDP loss of a key source of growth. Therefore, the Bank of Japan pursued economic growth objectives of monetary policy perspective, the implementation of monetary policy would be a natural choice. But the problem is that the Bank of Japan due to the current benchmark overnight rate is almost zero, the central bank has no room to cut rates, the Monetary Policy Committee voted unanimously to maintain the unsecured overnight call rate unchanged at 0.0% -0.1%. See from the recent series of moves, the Japanese central bank through open market operations to inject liquidity, particularly increased efforts to buy Japanese government bonds.

Japan's government debt has reached 225% GDP, although the majority of Japanese government debt held by its nationals, but the present circumstances, is difficult to digest such a large market or government bonds incremental redevelopment. Therefore, the Bank of Japan will have to absorb a large part of them, such as the central bank had planned to buy 1.5 trillion yen debt, now plans to buy 2 trillion yen. Currently only the demand side of the Bank of Japan as the national debt to stabilize the Japanese government bond market, and if the central bank purchases of government bonds do not expand, the Japanese government bond rates, or to rise, and the resulting pressure may cause the Japanese government repayment bankruptcy, and bond interest rates Japanese interest rates rise in the market also will suffer. Therefore, the Bank of Japan or to maintain low interest rates.