The US Federal Reserve, European Central Bank and the Bank of Japan sold yen on behalf of the Japanese government in an effort to stem a rally that threatens an export-driven recovery in the world's No. 2 economy.
The sales, the first time Japan's Finance Ministry asked foreign central banks to sell yen since September, drove the yen down to ?120.26 per dollar before the currency pared its losses to ?119.54, little changed from yesterday's close. The Japanese currency slipped to ?118.61 per euro from ?118.24 yesterday.
"I'm still skeptical it will do much but put a pause to the move" because the Fed and European Central Bank didn't put their own money to work, said Rebecca Patterson, a currency strategist at JP Morgan Chase & Co, the fifth-largest currency trader.
Japan's "been intervening on its own with very little success."
Japan's currency has surged 11 percent against the dollar this quarter as investors sought to profit from a recovery from recession. The gains accelerated in the past few months as investors fled slumping US stocks.
The last time major central banks each sold their own funds in a joint move in the currency market was in September 2000, when the US and other Group of Seven nations bought euros.
Analysts estimate Japan sold as much as US$5 billion worth of yen today, adding to an estimated US$30 billion that it sold on six other days since May 22.
"The problem is it's still their own money," said Jeremy Fand, a strategist at Friedberg Mercantile Group, with US$800 million in assets. The Bank of Japan is "trying something new" in selling through foreign central banks today, he said. "How can they make it seem more serious? Get others involved."
Fand said he is still looking to buy yen if it weakens on further yen sales, which he expects may come as soon as Monday Tokyo time.
Slower growth in the US, Japan's biggest overseas market, may stunt exports, which accounted for half of the Japanese economy's growth in the first quarter. With companies from Oji Paper Co to Isuzu Motors Ltd cutting jobs, Japan's recovery may be short-lived, economists said.
"The most energetic piece of the Japanese economy now is exports and the stronger yen threatens that," said David Rolley, who helps manage US$1.1 billion of global bonds at Loomis Sayles & Co in Boston. "It threatens the profitability of overseas sales and affects capital budgeting decisions inside Japan."
Japan's economy expanded for the first time in a year during the January-March period, at a 1.4 percent rate, after a decade of stop-start growth.
The central bank, which has pumped trillions of yen into the economy to stem a 33-month decline in consumer prices, has kept interest rates close to zero since March 2001 to spark growth.
The central bank's yen sales "could help Japan return to positive growth," said Bert Ruerup, a member of the German government's council of independent economic advisers known as the Five Wise Men. "That would be good news for the world economy.
It's important that Japan shakes off recession and deflation and returns to growth."
While the yen ended the day little changed compared to Thursday's close, it closed 0.5 percent weaker than its level this morning when the central banks began selling yen. The dollar pared its decline against the euro after the central bank yen sales, to trade at US$0.9913 per euro from US$0.9883 yesterday. It had earlier fallen to US$0.9988, its weakest level since Feb. 24, 2000.
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