The recent nose dives of global stock markets were primarily triggered by the uncertainties brought about by the catastrophe in Japan and the spreading unrests in the Middle East. Meanwhile, the forex market also became a bit more volatile in the past few days. Traders saw the considerable dips and surge of several major currencies in response to the latest developments in Asia and in the Middle East.

Based on the latest trends in the foreign exchange market, the British sterling has recently been gaining grounds after it was subjected under sell-off pressures. The pound recently rallied against a basket of other major currencies, such as the Australian dollar, the New Zealand dollar and the greenback.

The global forex market and the equity markets are continually being exposed to trading uncertainties as the Japanese nuclear crisis seems to become worse. Desperate measures are being done to almost no avail. The fuel rods of the various earthquake-damaged nuclear reactors continue to overheat and may deteriorate into full-blown meltdowns. Some of the nuclear waste storage facilities in Fukushima are also feared to be leaking dangerous levels of radiations.’

Major currencies, especially the safe-haven currencies, are likely to be affected by the unfolding developments in Japan. As the level of risk aversion in the market increases, the demand for safe-haven assets also increases. Many investors will try to protect their wealth by dumping high-risked holdings and then buying safe-haven assets such as gold, dollar and yen.

The recent massive sell-offs in the equity markets have resulted in the migration of funds to assets that are considered as hedge against market volatility. Being a safe-haven asset, the yen has dramatically gained grounds over other major currencies. The repatriation of funds from Japanese companies abroad also contributed in the rally of the yen. The yen reached its highest level against the US dollar since World War II. Nonetheless, the forex rally of the yen is not good news for the export-dependent economy of Japan. A strong yen would mean less competitive edge for the Japanese export sector.

In an attempt to stabilise the yen, the Japanese central bank resorted to quantitative easing programme. The Bank of Japan injected a total of JPY34trillion or equal to more than $430 billion into the system to provide greater market liquidity. The Bank of Japan purchased various assets, including government bonds in an effort to regain the trust of investors.

Those who intend to make money through the forex market may be prompted to sell their yen-related assets as the value of the yen falls. This will contribute to the further levelling-off of the yen back to more stable and favourable levels. In the long run, the equity market in Japan may again follow bullish trends.