Yen falls after G7 pledge to support Japan | The Mesh Report

Yen falls after G7 pledge to support Japan

the Mesh Report Staff March 18, 2011 0


TOKYO – The yen fell from historic highs Friday after the Group of Seven major industrialized nations promised coordinated intervention in currency markets to support Japan’s recovery from a catastrophic earthquake and tsunami.

The G-7 pledge came after the yen hit an all-time high against the dollar Thursday, possibly threatening Japan’s exports and hampering its economic recovery from the Mar. 11 quake that triggered an unfolding nuclear crisis.

After the announcement the dollar rose to 81.26 yen fro 79.45 yen, but it was unclear whether that was due to government intervention or to traders reacting to the news. The dollar briefly slumped to 76.53 yen on Thursday – an all time low for the U.S currency and a record high for the yen.

Japan’s Finance Minister Yoshihiko Noda said the government would intervene in the Tokyo market once morning trading opened Friday. But ministry spokespeople declined later to confirm whether that happened.

Noda said the planned intervention was meant to calm “volatility” and G-7 governments had no target exchange rate.

“We are not aiming for a specific level,” the minister told reporters.

The G-7 statement adds to a flurry of moves by Japan to calm roiled financial markets following the 9.0-magnitude quake and tsunami in northeastern Japan, which killed has thousands of people and left hundreds of thousands homeless.

Japan’s central bank welcomed the initiative. The bank has tried to calm jittery money markets by injected 38 trillion yen ($470 billion) in emergency cash this week on top its regular funding activities.

The benchmark Nikkei 225 stock average was up about 3 percent in the early afternoon following a turbulent week of trading amid the escalating nuclear crisis.

Smoke continued to billow from a building at Japan’s crippled Fukushima Dai-ichi nuclear power plant on Friday as emergency crews worked to reconnect electricity to cooling systems and spray more water on overheating nuclear fuel at the tsunami-ravaged facility.

In a joint statement issued following emergency discussions, the G-7 officials said that the United States, Britain, Canada and the European Central Bank will join with Japan in a “concerted intervention” in currency markets Friday. It would be the first time since late 2000 that the governments have jointly intervened in currency markets.

“We express our solidarity with the Japanese people in these difficult times,” the statement said.

Noda, the finance minister, expressed Japan’s gratitude.

The yen’s rise was driven by expectations that Japanese companies would sell dollar-denominated assets and buy yen to pay for quake recovery. Traders said there was no sign that happened, which meant government intervention might be able to discourage further speculation.

“Intervention was inevitable for the Japanese authorities. That was the general thinking in the market,” said Masafumi Yamamoto, chief foreign exchange strategist at Barclays Capital Japan. He called the G-7 statement a “strong message.”

Yamamoto said the G-7 pledge of cooperation was a striking contrast to last year’s talk of possible “currency wars” and governments trying to weaken their currencies to shore up exports amid the global crisis.

“It’s completely different from last year,” he said. “People were talking about currency wars and competitive devaluation. So it’s a total change. In that sense, it was very significant that speculative yen appreciation can be attacked by coordinated action.”

Goldman Sachs estimated Japan’s disaster losses could reach $200 billion, the equivalent of more than 3 percent of Japan’s annual gross domestic product.

It is unclear how much a change in exchange rates might help Japanese exporters, which also are struggling with power shortages that have forced major auto manufacturers and others to suspend production.

“Many would currently be unable to benefit from a weaker yen anyway,” Capital Economics said in a report. “A stronger currency will at least make imports cheaper and therefore minimize the additional costs of meeting any shortfall in necessities following the disruption to domestic supplies.”

Associated Press writer Tomoko A. Hosaka contributed.

A service of YellowBrix, Inc.

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