Over the past two weeks, the Japanese yen has been the strongest of the major currencies. However the yen's performance in the foreign exchange market does not appear to be a reflection of the Japanese economy.The situation in Japan is arguably even worse than the economic data would suggest.

The power shortages and damaged factories are taking a larger toll than was initially evident. Press reports warn that the contagion via the supply chains may have greater global impact, which in turn could impact the manufacturing activity outside of Japan.

Moody's today revised this year to 0.0%-1.0% from 1.5% and with downside risks. The anticipated weakness this year will be made up for next year and it sees the Japanese economy expanding 1.5%-2.5% in 2012. Recession in the first half of this calendar year to with a recovery beginning after June. The BOJ may provide new GDP forecasts later this week. The local prices warns that the BOJ could cut its 1.6% forecast for FY2011 in half.

Moody's anticipates that Asia would be the hardest hit from the disruption of Japanese supply chains. Exports of intermediate goods from Japan are relatively larger than final goods exports to countries like China and South Korea.

The disruption from Japan may see some competitors pick up market share at least in the near-term. US chip manufacturers reported a 1.5% (2 month average) in March of its global bookings (according to SEMI, the trade group). Orders are up 22% on a year-over-year basis.

The Yen continues to benefit as a flight to safety despite the fact that the country is being hit by hard economic times. Support for the USD/JPY is seen near 81.50 and then again at 81.00. Resistance on the currency pair is seen near 83 and then again at 84.00.