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Japanese Yen Fueled by Earthquake

(Market prices updated.)
NEW YORK (TheStreet) -- The Japanese yen advanced Friday after a massive, tsunami-inducing earthquake struck Japan, killing hundreds.

It was the biggest earthquake ever to hit Japan.

The U.S. dollar slid 1.3% against the Japanese currency at 81.876 yen. The CurrencyShares Japanese Yen Trust (FXY) exchange-traded fund rose 1.3% to $120.61, while the PowerShares DB US Dollar Index Bearish (UDN) added 0.7% to $27.87.

"You would expect any catastrophic event would have a negative impact on the victim's currency," Chuck Butler, president of Everbank World Markets, said in a morning report. "But this natural disaster has caused these Japanese investors to bring their currency back home, as they fear they will need it to help rebuild."

Over the years, Japanese investors have been investing their savings in foreign markets, including the higher-yielding currencies of New Zealand and Australia, given the near-zero interest rates in their home country. But the magnitude of the earthquake's devastation was helping to reverse this trend.

Still, Butler cautioned that the yen's appreciation will likely be short-term, and he advised longer-term investors to avoid the Japanese currency.

"The economy will actually benefit from this disaster in the short run as there will be fiscal stimulus from reconstruction. But Japan's budget deficits are already close to 10% of GDP, and this additional spending will only add to the problem facing Japan's aging population," he said.

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