Yen Gains on Dollar Despite Nuclear Crisis

The yen appreciated slightly against the dollar Monday, rising amid worldwide uncertainty over the spreading debt crisis in Europe and the possible debt ceiling breach in the United States. The JPY/USD pairing rose from $0.01230 to $0.01240, continuing an upward trend over the last day of trading.Much of Japan is focused on the national reconstruction effort, as the island nation rebuilds following the March tsunami and nuclear reactor disaster. In an almost pre-war, all-hands-on-deck sense, Japan's economy is being mobilized and utilized for reconstruction.Industry minister Banri Kaieda reported that Japan's economy is recovering just fine from the disaster. However, it's a pretty open secret in political circles that the Japanese government's stance on the recovery effort is more public relations than necessarily fact.What's a trader to do?The future of Japan's economy is very likely intertwined with its nuclear power industry. With rumors of the government manipulating safety statistics on nuclear power, it remains to be seen whether the upcoming stress tests will relieve concerns over this understandably controversial energy source.The tests are appointed to a non-governmental agency, which aids the situation in public eyes, but the stress tests themselves still present complications. The public could react negatively to any plants that are brought back online, protesting and interrupting commerce in the interest of assuring safety.Yet, if the plants are not brought back online, then power outages could occur as the year goes on. In the worst case scenario, another mishap could occur as a plant is reactivated, disrupting public and commercial life and damaging reconstruction efforts.Either way, the reconstruction is fraught with difficulties, all of which will have an impact on the Japanese economy and on the yen. which tends to fluctuate in relation to how confident the market is in the strength of the Japanese economy. Since confidence is impacted by government statements, ongoing events, and public sentiment over the reconstruction, there could be a lot of volatility ahead for this reserve currency.ACTION ITEMS:

Bullish:

• Japan's government will continue to attempt to shape public perception, and persuade people that the economy is strong and stress test efforts are well-intentioned. They may actually manage to increase confidence in the economy and stabilize or partially rally markets.

Bearish

• Further rough times in Japan will mean another loss in confidence, like that seen in early April. If things go sour in the Japanese economy expect another reserve currency to benefit, as yen are traded for dollars or perhaps even euros.

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