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Dollar soars versus yen after Japan intervenes

By Tali Arbel
AP Business Writer / September 15, 2010

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NEW YORK—The dollar surged on Wednesday to its highest level against the Japanese yen in September after the Bank of Japan unexpectedly moved to weaken the yen.

The dollar rose 3 percent in its biggest one-day gain versus the yen since the depths of the financial crisis in fall 2008.

However, some analysts say the yen's gains are likely to continue.

The yen has hit a series of 15-year highs versus the dollar since August, and has risen about 10 percent this year as investors seek refuge in the yen, which is considered a safe haven currency. The rapid rise, which hurts the profits of Japan's major exporters, has become a major issue for Japan's politicians as it threatens to undermine the recovery in the world's No. 3 economy.

After the yen's most recent peak Tuesday evening of 82.88 yen against the dollar, the Bank of Japan sold yen and bought dollars directly in the marketplace. It was the first intervention since March 2004.

By late afternoon in New York, the dollar traded at 85.62 yen, up from 83.07 the previous night. It is the biggest move upward since Oct. 2008, when the dollar jumped to 95.73 yen from 93.18 yen.

Some analysts doubted that a one-time intervention would be effective in stopping the yen's ascent.

"The key driver of the yen's recent rise has been demand for a safe haven from problems elsewhere, meaning that there may soon be more willing buyers to snap up any yen that the Bank of Japan is ready to sell," said Julian Jessop, an economist at Capital Economics in London.

While Japan's economic recovery is fragile, investors perceive the yen to be a "safe" place to park funds because it has a current account surplus, its government debt is owned mostly by domestic investors rather than foreigners and falling prices there make assets bought in yen more attractive to foreigners.

The dollar has also traditionally been considered a safe-haven currency, but the prospect of slowing growth in the U.S. this year has sapped some of its appeal. Speculation that the Federal Reserve will try to kick-start the economy by buying massive amounts of U.S. debt, driving interest rates even lower, is also weighing on the dollar. Investors this summer have preferred the yen and Swiss franc to the U.S. currency when they're seeking safety.

"Until the global fundamental picture changes, the ability of the authorities to weaken the yen will be limited," said Derek Halpenny, European head of global currency research at the Bank of Tokyo-Mitsubishi UFJ.

But according to UBS analyst Geoffrey Yu, if Wednesday's move is the first in a "campaign of intervention" by the Japanese government, it could put a floor in the dollar's drop against the yen in the range of 80 yen to 85 yen.

The dollar was mixed against other currencies Wednesday. The euro, used by 16 countries in Europe, dipped to $1.3006 from $1.3019, while the British pound rose to $1.5620 from $1.5569.

The dollar rose to 1.0277 Canadian dollars from 1.0248 Canadian dollars, and gained to 1.0038 Swiss francs from 0.9950 Swiss francs.

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Associated Press Writers Pan Pylas in London and Tomoko Hosaka in Tokyo contributed to this report.