Tsunami fails to shock Asian currency market

Despite an early drop in the Japanese yen shortly after last month’s Asian tsunami catastrophe, most forex analysts believe the currency markets will not suffer much of an adverse affect in coming months.

The yen weakened in the tsunami’s aftermath, but had largely recouped its losses as of Jan. 5. Currencies in some smaller Asian countries were hit harder.

Thailand is likely to be one of the most impacted countries, since tourism accounts for more than 5 percent of its economy. Its currency –– the baht –– might decline in value, according to analysts, but the disaster did not weigh too heavily on the overall markets, perhaps in part because of the focus on the humanitarian aspect of the tragedy.

Most forex players say the yen’s decline should not be overly troubling to market participants.

“I don’t see any major effects on the Japanese economy, short or long term, because most of the countries hit are not major consumers,” says Omer Esiner, market analyst with Ruesch International. “There certainly was a knee-jerk reaction at first. The yen has fallen against the dollar, but it has not been due to the tsunami, it is due to the dollar’s recent strength.”

For the most part, damage to tourism-heavy areas occurred in countries that do not have actively traded currencies, says Brian Dolan, director of research with Gain Capital Markets. “This really is not going to amount to any kind of major loss in the markets,” he says. “Everyone is more concerned with how to help.”

“The [tsunami’s] impact on currencies has been minimal,” says Dave Floyd, founder of Aspen Trading.

“Japan’s major export market is U.S. and China, so Indonesia and Thailand represent a smaller portion. The recent weakness in yen is more a factor of the dollar finally gaining some ground versus all G20 currencies.”

Some say the disaster could help Asian currencies.

“Rather than negatively impacting local Asian currencies, it appears that the tsunami will actually promote Asian currency strength,” says Michael Woolfolk, senior currency strategist with the Bank of New York. “The disaster was confined to non-industrial areas that do not have a large impact on local economic activity. While economic growth is expected to remain largely unchanged, the importation of disaster relief and related construction activity is expected to stimulate demand for local currencies.”