Japan witnessed one of the worst tragedies in the world after the earthquake and tsunami struck it on March 11, 2011. The tragedy killed thousands of innocent people and damaged the property worth hundreds of billions. Obviously, the impact of the disaster on the global economy was obvious and thus affecting Yen against other major currencies and also affected GDP growth of the country as well as other nearby countries.
As far as the cost estimate of the disaster is concerned, it will not be possible to estimate it correctly for years to come but according to Japanese government, the cost of damage range between USD 200 billion to USD 300 billion. This cost estimation makes the disaster in Japan the costliest natural disaster in history.
If we talk about the impact of disaster on currency then initially the reaction noticed was the strengthening of the value of Yen against USD. It was something which unexpected to a number of investors or traders. It is due to the fact that the large amount is required to repair the physical damage that took place due to the disaster. However, the value of Yen continued to rise till it reaches to about 76 yen to dollar which was almost equal to the value of Yen post World War-II.
There have been speculations that the reason behind the strengthening of Yen against other currencies was the traders expecting that the government and corporations would be required to liquidate part of their large part of their non-yen denominated investment to fulfill the fund requirements in Japan for relief and reconstruction.
It must be noted here that after China, it is the Japan government who is second largest owner of United States treasuries. The amount leads to $886 billion in holdings by March, 2011. The market must have expected a part of this treasury and other investment to be liquidated.
In the end, it can be easily calculated that earthquake and tsunami had ripple effect on the currency as well as equity markets. Additionally, it also has yet to known impact on economic growth of Japan also.