G7 closes ranks to shore up quake-hit markets

Japan and its economic allies on Friday intervened jointly in world currency markets for the first time in a decade to calm turmoil sparked by a huge earthquake and a deepening nuclear crisis. The announcement that the Japanese, US, eurozone, Canadian and British monetary authorities would take concerted action immediately pushed down the yen as intended and helped to lift battered Tokyo shares.
The pledge came after emergency telephone talks by the Group of Seven nations in response to a surge in the yen, which threatened the Japanese economy's recovery prospects following the March 11 quake and tsunami. "We express our solidarity with the Japanese people in these difficult times, our readiness to provide any needed co-operation and our confidence in the resilience of the Japanese economy and financial sector," a G7 statement said.
"As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate." The G7 groups Britain, Canada, France, Germany, Italy, Japan and the United States. It was their first co-ordinated intervention since 2000.
The unit had strengthened sharply despite fears of a major hit to the Japanese economy from the natural disasters and resulting atomic crisis. The dollar rose sharply against the yen Friday in the wake of the G7 pledge, rebounding back above the 81 level.
The greenback spiked to 81.76 in the first minute of trading in New York, but pulled back to around 81.33. On Thursday the dollar had tumbled below 77 yen, hitting its lowest level against the Japanese currency since World War II, a move Tokyo blamed on speculators betting on an influx of capital to aid reconstruction efforts.
"Although we expect further forex intervention over coming days, upward pressure on the currency will remain in place, suggesting a battle in prospect for the authorities to weaken the currency going forward," said Credit Agricole analyst Mitul Kotecha.
"Round one has gone to the Japanese finance ministry and G7, but there is still a long way to go, with prospects of huge repatriation flows likely to make the task of weakening the yen a difficult one." A stronger currency is bad news for Japanese exporters whose production has been hammered by the quake-tsunami disaster, which has left almost 17,000 people dead or missing and inflicted widespread devastation on homes and infrastructure.
"We believe it is extremely important that G7 countries unite and cooperate towards stabilising the markets when our country is in a difficult state," Japan's Finance Minister Yoshihiko Noda told reporters. The Bank of Japan injected another four trillion yen ($49 billion) of emergency funds into the short-term money markets Friday - the latest in a series of injections to prevent financial institutions running out of cash.
Tokyo shares surged as investors welcomed the G7 announcement. The benchmark Nikkei index closed up 2.72 percent. Shares of TEPCO - which operates the stricken Fukushima No 1 nuclear power plant - closed up 19 percent, limit-up, at 948 yen, having lost more than 62 percent over the past five sessions through Thursday.
The Nikkei index plunged 16 percent on Monday and Tuesday. Markets have been on edge all week as Japanese authorities battle to regain control of the power plant, which has suffered a series of blasts. Officials have been trying to douse radioactive fuel rods using helicopters and water cannon while also racing to reconnect electricity to restart the plant's cooling systems in a desperate bid to prevent more radiation leaking.
Japan relies on its nuclear plants to provide around 30 percent of its energy needs, and shutdowns in the wake of the massive 9.0 earthquake have led to rolling outages that have forced companies to suspend production lines. Damage from the earthquake could potentially amount to tens of trillions of yen (hundreds of billions of dollars) and could lead to months of disruption to Japan's factory production due to supply problems and power cuts, analysts say.