Japan yesterday took steps to weaken the yen in an effort to help safeguard the nation’s post-disaster recovery after the currency’s recent surge toward a post-war high.
The government intervened unilaterally in currency markets to counter “one-sided” and “excessive” speculator-driven movements in the yen that it said threatened Japan’s recovery from the March 11 earthquake and tsunami.
“If the moves continue, it could negatively impact the Japanese economy and financial stability when Japan is making various efforts to reconstruct itself following the impact of the disaster,” Japanese Finance Minister Yoshihiko Noda said. “Therefore, we carried out currency intervention. Now we will watch market movements closely.”
Officials declined to comment on the size of the intervention.
The Bank of Japan announced further efforts to spur the economy in coordination with the government’s moves, expanding a program to purchase assets and boost liquidity by ￥10 trillion (US$126 billion) to ￥50 trillion.
Japan’s first currency intervention since March saw the yen fall sharply from just after 10am and by 4:30pm the US dollar had risen to ￥79.41 from ￥76.99 earlier in the day. The Japanese currency also fell against the euro, with the single currency fetching ￥113.73 from an earlier ￥110.32.
Analysts have questioned how effective yesterday’s intervention will be, given that the yen’s strength has been because of continued weakness in currencies such as the US dollar and the euro amid fears for the US and eurozone economies.
A deal to raise the US debt ceiling and avoid a calamitous default this week failed to relieve the recent pressure on the greenback, with investors focused on evidence of a weakening US economy and the threat of a downgrade.
“It is hard to see the move higher in the [yen-dollar] pair as anything more than temporary,” amid clear signs of the US economy slowing, IG Markets said in a client note.
Japan’s last intervention in March with its G7 counterparts — after the yen hit a post-war high of ￥76.25 to the US dollar following the earthquake and tsunami — helped push it to as low as ￥85 to the US dollar in April, but it has since strengthened.
Yesterday’s intervention was Japan’s first unilateral move since September last year. Analysts said authorities would likely continue to sell the yen throughout the day.
Officials had in recent days raised their rhetoric against the surging currency in a bid to cool it with the threat of intervention. Noda on Tuesday said the yen was “overvalued,” while Bank of Japan Governor Masaaki Shirakawa on Wednesday warned of its impact on exporters.
The move also came after the Swiss central bank lowered its key rate and boosted liquidity on Wednesday to stem the rise of the Swiss franc, also regarded as a “safe haven” for investors.
Japan’s actions to weaken the unit helped buoy Tokyo shares, but earlier gains faded as the Nikkei index closed just 0.23 percent higher.