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Why the Yen Rallied Post-Quake, and What You Should Do About It

Friday, 11 Mar 2011 | 8:07 PM ET
Japanese 10,000 Yen bank notes
Luc Novovitch | Photographer's Choice | Getty Images
Japanese 10,000 Yen bank notes

You would think that a disaster like an earthquake registering 8.9 on the Richter scalewould cause a currency to, well, swoon. But the yen did the opposite on Friday, riding to new highs after an initial plunge.

What do you do now?

Rebecca Patterson, global head of currencies and commodities at J.P. Morgan's private bank, expects a repatriation effort to bolster the yen near term, she said on tonight's premiere of "Money in Motion Currency Trading," but she doesn't expect the effect to last.

"The last thing they need right now" is a strong yen, and they will take steps to keep that from happening. I still think Japan is going to try to fight this" yen rise, she said.

Patterson recommended that investors go long dollars and short yen if dollar/yen gets to 81, with a stop loss of 78 and a target around 86.

Andrew B. Busch, currency and public policy strategist at BMO Capital Markets, agreed that shorting the yen makes sense at current levels because he is nervous about the scope of the disaster. "There is a big problem there. If it really gets much worse than it is, you're going to see the yen weaken." He also recommends shorting yen, he told Melissa Lee, the host of CNBC's "Money In Motion."

Money Match Up
How the Japan quake rocked the foreign exchange market. The yen rallies as Forex traders bet on a re-patriation of capital, with Dennis Gartman, The Gartman Letter; and CNBC's Melissa Lee and the Money In Motion traders.

Dennis Gartmanof The Gartman Letter, who was short the yen before this earthquake hit, noted that the yen strengthened after the Kobe earthquake in 1995, but feels that there are other bearish factors weighing on Japan - besides the aftermath of the quake. Still, he intends to let things settle for a bit before getting back in. "I probably will stay on the side and watch what's going on and let other people play," Gartman said.

Todd Gordon, co-head of research at Aspen Trading Group, was also short dollar/yen when the earthquake hit, he said. He anticipates the market looking for congregations of stops right around the low that dollar/yen it hit in November, around 80.25, and he said if dollar/yen gets to that level it would be a buying opportunity. But, he said, "stops below the 80 level need to be cleared out first."

Now all you have to do is decide on your time horizon and take your pick of strategies.

Disclosures: Funds Managed By Dennis Gartman Are Long Australian Dollar And Canadian Dollar, Short Yen; Funds Managed By Dennis Gartman Are Long Swiss Franc, Short Euro. Patterson, Busch, and Gordon have no disclosures to report.

CURRENCY FUTURES

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm.

"Money in Motion Currency Trading" repeats on Saturdays at 7pm.

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