In a plotline that would stretch the credibility of a movie audience, the cause and effect in the Japanese disaster is still unfolding. Earthquake - triggers tsunami - triggers power loss - triggers backup generators to fire up at power plant which fail - triggers battery backup to start which fail - triggers overheating nuclear core - triggers risk aversion in financial markets and widespread health risks.

That is where we find ourselves this morning. Further knock-on effects include a fall in copper, tin, zinc etc as the markets assume the global nuclear construction program is likely to face problems and Germany’s decision to abandon plans to extend the life of its nuclear plants proves that to be a valid concern. That weakens the currencies of the countries which produce these commodities like Canada and Australia. It has also, perversely enough, caused a strengthening of the Japanese Yen for two reasons. Firstly, Japanese investors are unwinding trades which involve exchange rate risk and secondly, Japanese Companies are bringing funds home in advance of the investment that will be needed in the inevitable rebuilding of Japan’s infrastructure.

The repatriation of funds by Japanese companies has another knock on effect on the currencies of the countries that Japanese investors traditionally gravitate towards when Interest rate yield is a driving force; currencies like the Australian Dollar and New Zealand Dollar which both weakened overnight. The Australian Dollar was also weakened to some degree by comments from the Reserve Bank of Australia which now thinks the Queensland floods will have a greater impact on the economy than they first thought.

We get the Bank of Japan’s interest rate decision today but it is an irrelevance when the BOJ is pushing 23 trillion Yen into the markets and their base rate is already 0%.

Elsewhere the Pound had a better day yesterday after the credit ratings agency, Fitch gave its seal of approval to the UK government’s plans for cost and debt cutting. The UK government will take heart from the endorsement of its plans by the agency because it means it will keep their debt servicing costs lower and make it easier to roll over bonds as and when they reach maturity. In straight terms, it’ll make it easier and cheaper for the government to borrow more money when it needs to.

The Euro also had a reasonable day but stayed within ranges while the markets try to absorb the implications of the expanded scope of the European Financial Stability Facility and rumours sill rage over imminent funding problems for Portugal and the inability of the EU to reach an agreement with Ireland over Ireland’s corporate tax incentives.

Elsewhere, the US Dollar is in the spotlight ahead of this evening’s interest rate decision from the Federal Reserve. No change is forecast; in fact no change is forecast until perhaps May 2012 but we always listen hard for signs of a change in the quantitative easing volume or scope. The disparity between different elements of US economic data is enough to keep the Fed on hold for now. Improving labour market data and growth in manufacturing output are not yet being reflected in the housing or retail markets and that is a clear concern for the Federal Reserve. It is no surprise that the US Dollar remains weak. However, there is still a fair amount of safe haven buying of the USD going on so a collapse in the value of the USD is unlikely and further US Dollar strength is a much more likely scenario. Today brings a flurry of US data to keep tongues wagging so don’t blink.

And finally, I think I have discovered why models do well in those jungle celebrity programs. A somewhat pneumatic Israeli model Orit Fox was being photographed with a large boa constrictor which took offence to being manhandled and bit Orit on her boob. The model was given a tetanus jab and recovered well although she perhaps had to have that side inflated again. The snake sadly died from silicone poisoning. So if you have to go into the jungle, it seems the best equipment to take with you to protect you from snakes is a pair of substantial chest enhancements. That is perhaps not a moral you would ever have thought you would read in a currency report but we like to offer health and safety advice where we can.


Quotes on safety

The best car safety device is a rear-view mirror with a cop in it.
Dudley Moore

The best car safety equipment would be a big spike in place of the airbag. It is amazing how careful people are when their own life is so obviously in peril.
Anon