Quake Provides 'Excuse' for More Easing: Economist

Tuesday, 15 Mar 2011 | 3:22 AM ET

Following the huge losses on the Nikkei, with more than $700 billion dollars wiped off the Japanese market in just two sessions, one economist is predicting the tragic events in Japan will be an "excuse" 'to move to quantitative easing in all major markets.

"The key thing to watch over the next few sessions will be the size of repatriation from Japanese assets from overseas and its impact on currencies," Steen Jakobsen, chief economist at Saxo Bank in Copenhagen, said.

We are very likely to see the Japanese withdraw and size down overseas credit as the insurance companies will need to raise their cash reserves."

"The market is underestimating the size of Japanese recycling of capital and especially their size in trade finance,” Jakobsen said.

Investors should be prepared for Japanese investors selling European and US bonds in favor of Japanese Government Bonds, he said.

“The combined impact of the Middle-East crisis and the earthquake will increase the home bias, the tendency to invest close to home, as cash becomes king, and Japan is by far the biggest capital exporter over the last decade, despite all the talks of China,” Jakobsen noted.

Eventually the yen could trade at 65 to the dollar, which would raise the cost of capital as “global recycling short-circuits,” he said.

“We are also entering financial year end for corporate Japan, which can only add to the volatility. Despite all this, there is fair chance that this is merely a correction," Jakobsen said.

"There is political will and demand for further stimulus.”

The earthquake and situation in the Middle East will provide an excuse for the Federal Reserve to buy more bonds (QE3) and for the European Central Bank and the Bank of England not to raise interest rates, he added.


  • Pro-Russian activists seized the main administration building in the eastern Ukrainian city of Donetsk.

    Deadly clashes in eastern Ukraine have spiked fears of all-out war in the region. So who are the armed, flag-waving rebels who appear to be behind it all?

  • An employee wipes a TV screen in a shop in Moscow, on April 17, 2014, during the broadcast of President Vladimir Putin's televised question and answer session with the nation.

    Russian President Vladimir Putin warned of possible disruption to Europe's gas supply on Thursday, as the U.S. confirmed it would send additional military support to Ukraine.

  • The recovery in the EU's car industry carried on through March, providing some much needed cheer for automakers.

  • Amazon is facing fresh strikes in Germany after pay negotiations with the country's second-largest union Ver.di broke down, the Financial Times reports.

Contact Europe News


    Get the best of CNBC in your inbox

    › Learn More

Europe Video

  • Jan Dunning, CEO of St Petersburg-headquartered hypermarket chain Lenta, says the situation in Ukraine has had no impact on the group, as consumer confidence remains unaffected in Russia.

  • Vincent Deluard, European strategist at Ned Davis Research Group, says the strong euro is a problem for the region's companies, especially for the large exporters.

  • European shares closed higher on Thursday as investors brushed aside concerns regarding Ukraine and focused instead on Wall Street earnings and the latest U.S. jobs data.