Shaken by the prospect of nuclear meltdown after a devastating earthquake and tsunami, Japanese investors will dump overseas assets on Monday and bring their money home to help finance reconstruction.
Positioning for this could send the dollar plummeting versus the yen on Monday and lead to a sharp slide in Treasuries since U.S. government bonds are a favorite asset of Japanese investors, market analysts said.
Stocks also are likely to come under pressure.
Japanese insurers will probably sell some of their most liquid foreign assets such as U.S. Treasuries so they can respond to the worst disaster since World War Two.
The crisis could lead to insured losses of nearly $35 billion, risk modeling company AIR Worldwide said, making it one of the most expensive disasters in history and nearly as much as the entire worldwide catastrophe loss for the global insurance industry.
Traders braced for just such an outcome on Friday, when the yen surged and Treasuries fell. The Bank of Japan probably will add money to the system to limit the liquidation of assets. But the big question remains of how much follow-through selling is yet to come.
Dan Fuss, the vice chairman of $150 billion Loomis Sayles, told Reuters on Sunday that his best guess is that Treasuries will continue to see losses.
Because Japan is the second-biggest holder of U.S. government debt and they have nearly $900 billion in dollar reserves, Fuss said Japan will likely use reserves for rebuilding.
"A big buyer of bonds is taken out of the market," Fuss said, adding that Japan "will be less able to add to their reserves and less able to buy Treasuries."
Link:
http://www.reuters.com/article/2011/03/13/us-markets-weekahead-idUSTRE72A31H20110313
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