The yen fell sharply on Thursday as Japan intervened to curb the currency's strength to support its export-led economy, a day after Switzerland's central bank unexpectedly cut interest rates to cap a soaring Swiss franc. London traders cited constant yen selling versus the dollar by Japanese authorities during the European session, which briefly pushed the dollar above the psychologically key 80 yen level. Tokyo had been steady yen sellers in the Asian market.
The US currency rose roughly 4 percent on the day to a three-week high of 80.25 yen according to electronic trading platform EBS, and was poised to post its best daily performance since October 2008. Yen selling against the dollar boosted the euro, which rose more than 3 percent against the yen to 114.16 yen.
Japan's move followed a pledge by the Swiss National Bank on Wednesday that it is ready to act to weaken the Swiss franc, and highlighted the desire for countries with strong currencies to slow further appreciation. Both considered safe havens during times of market distress, the yen came within a whisker of its strongest ever versus the dollar earlier this week, while the Swiss franc has been hitting record highs against the dollar and the euro on a near-daily basis in past weeks.
Reflecting anxiety that Swiss authorities may also enter the market, the euro rose 0.2 percent against the Swiss franc to 1.1046 francs, staying well above a record low of 1.0794 hit earlier this week. By 1203 GMT, the dollar traded at 79.85 yen, paring gains but still up 3.6 percent on the day. Traders said a variety of market players sold into the greenback's rally, including Asian central banks, Japanese exporters and retail investors, and hedge funds.
The dollar faced technical resistance around 79.95 yen, its 55-day moving average, while traders cited Japanese exporter offers around 80.40 yen, which could also cap a further rise in the US currency. On Monday, the dollar hit a four-month low of 76.29 yen, close to its record trough of 76.25 yen hit in March after the earthquake. That strengthening worried Japanese exporters.
Finance Minister Yoshihiko Noda confirmed Tokyo had intervened, adding that Japan had acted alone and was communicating with other countries on the move. Traders estimated the size of intervention at more than 1 trillion yen during the Asian session, and some players speculated that Japan's action could end up rivalling the 2.1 trillion yen in intervention it conducted on September 15, 2010 - the biggest one-day yen-selling intervention ever.
In a policy decision reached a day earlier than initially planned, the BoJ boosted the size of its asset-buying programme to 15 trillion yen from 10 trillion yen, and topped up by 5 trillion yen a 30 trillion yen programme for offering fixed-rate fund injections into the money market.