Japan sold one trillion yen ($12.5 billion) and loosened its monetary reins on Thursday, joining Switzerland in efforts to tame currencies buoyed by safe-haven demand from investors fretting about the deteriorating health of the global economy. Japan's intervention, which it continued in London trading hours, pushed the yen to a three-week low of 80.20 per dollar from around 77.10, a more extensive yen move compared with intervention in March this year and September 2010.
US traders said Tokyo seemed to have backed away from intervening in the North American market session, allowing the yen to recover to 79.120, a 2.7 percent rise against the dollar. Japan's action followed days of official warnings that the yen had risen so much that it threatened to derail its recovery from the destruction wrought by the March 11 magnitude 9.0 earthquake, a deadly tsunami and an ensuing nuclear crisis.
Finance Minister Yoshihiko Noda said Japan had consulted its international partners, but intervened on its own to stem what it considered speculative and disorderly currency moves. The United States did not support the intervention, a US official said, declining to elaborate on whether that meant Washington disapproved of the action. European Central Bank chief Jean-Claude Trichet added that Japan's move was not part of a multilateral process, unlike a March intervention done jointly by the Group of Seven economies.
"We consider that such interventions have to be made on the basis of a multilateral consensus," Trichet told a news conference in Frankfurt. Hours later after the Finance Ministry intervened, the Bank of Japan joined the fray, boosting funds for buying financial assets to 15 trillion yen from 10 trillion yen, under a scheme established in October 2010 to shore up market confidence and support the economy. "The central bank seems to be working in sync with the finance ministry, and that is different from past times when they eased policy," said Koichi Ono, senior strategist at Daiwa Securities Capital Markets. "It's a message that they are willing to act to stop the yen from appreciating further."
Analysts doubted though that even a combination of yen selling and monetary easing could stem a global shift away from the dollar and other riskier assets if Tokyo were to continue acting on its own. "The yen's advance reflects the difficult economic and fiscal situation of both the US and the euro zone, so even if Japan intervenes in the market, it won't be able to combat the yen's rise in the long run on its own," said Takashi Kamiya, chief economist at T&D Asset Management Co.
Indeed, Japan's Economy Minister Kaoru Yosano pressed on Thursday for Group of Seven and Group of 20 officials to discuss currencies as a global issue. The co-ordinated action with the central bank was important for Prime Minister Naoto Kan and his government, beset by poor ratings and struggling with the aftermath of Japan's worst disaster in generations and the world's gravest nuclear crisis since Chernobyl 25 years ago. "Japan is just in the process of recovering from a natural disaster, so these currency moves are certain to have a negative impact on the economy and financial markets," Noda told reporters in justifying the intervention.
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