In 1995, a devastating earthquake struck the city of Kobe in Japan, claiming 6,000 lives and causing$100 billion in damage. In the following few months, the Japanese yen surged 20 percent against the US dollar.

Japan is a net owner of foreign financial assets. Following natural disasters, Japanese investors usually convert foreign assets into Japanese assets (thus buying up the yen) in order to raise cash to deal with the damages and pay for rebuilding.

In 2011, the T?hoku earthquake and tsunami claimed even more lives and caused more economic damage. Traders, therefore, anticipated Japanese repatriation and the subsequent rise in the yen.

However, repatriation hasn’t really happened so far.

Moreover, all the rallies in the yen – including the huge one on March 16, 2011 (which later prompted the G7 to intervene in the forex market) – was driven by speculation rather than repatriation.

BNY Mellon senior currency strategist Michael Woolfolk admits that analysts are somewhat puzzled by the lack of repatriation.

One explanation is that Japanese corporate repatriation already happened before the earthquake.

For Japanese companies, the fiscal year ends at March 31. Therefore, they often repatriate foreign assets to window dress the earnings (i.e. make them look better) for the year-end.

This took place to some extent during the first couple months of 2011, said Woolfolk.

In sharp contrast, the 1995 Kobe earthquake happened in January before any corporate year-end repatriation took place.

However, corporate repatriation doesn’t account for the whole story.

Woolfolk thinks the simple truth is that repatriation hasn’t happened yet – but it eventually will. It’s not a matter of if, but of when and how large, because money will be needed to pay for damages and reconstruction.

So far, in the absence of repatriation and after the coordinated G7 intervention to weaken the yen, the yen has plunged against the US dollar in the last three weeks, losing almost 5 percent.

However, this decline looks vulnerable to a reversal in light of Woolfolk’s analysis.

First, sooner or later, some amount of repatriation will likely occur. Woolfolk doesn’t think it’ll move the yen as much as it did in 1995 – in 2011, such a move would not be tolerated politically – but it’ll still push the yen up to some degree.

Second, the decline in the yen was driven by a renewed surge in the carry trade (with the yen being the short leg of it) on the back of healthy global risk appetite, said Woolfolk.

Of course, risk appetite is often interrupted – especially during periods of heightened uncertainties.

So when repatriation and/or risk-off sentiment hit the market, then yen will rise.

In the long-term, though, Woolfolk is still bearish on the yen. He said interest differentials will be the difference maker as the Bank of Japan leave interest rates unchanged indefinitely while other countries are beginning to normalize their monetary policies.

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