Japan intervenes to weaken the yen
Move intended to give nation’s exporters a boost
Relieved investors sent Japanese stock prices up 2.3 percent after news of the Bank of Japan’s market intervention came out. Shares of Japanese exporters jumped and the yen fell 3 percent or more against major currencies including the dollar, euro, and British pound. It was the yen’s biggest one-day move against the dollar since the fall of 2008, at the height of the financial crisis.
Japanese officials would not provide a figure for how much yen the central bank sold in the market, and analysts cautioned that the long-term impact would depend on whether, and how, US and European central banks respond.
The dollar purchases by Japan’s central bank caught markets off guard because traders had believed that Prime Minister Naoto Kan was unlikely to orchestrate such an intervention. But Tokyo has been under intense pressure from manufacturers whose exports have become less competitive around the globe as a result of the strong yen.
The yen had risen about 10 percent against the dollar this year, hitting a series of 15-year highs versus the US currency since August.
Normally investors seeking stable investments in currency markets turn to the US dollar, but the dollar has been slumping against other currencies in recent weeks as US interest rates have fallen, making the dollar a less attractive investment versus other currencies. That has led risk-averse investors to shift money into the yen and the Swiss franc, both of which are also seen as safe places to park money.
A strong yen hurts Japanese exporters’ foreign income and makes their products less competitive in overseas markets. Toyota Motor Corp. estimates that every 1-yen climb versus the dollar saps $351 million from earnings.
The government now has a “sense of crisis’’ about the yen, said Tomoko Fujii, a senior currency strategist at Bank of America Merrill Lynch. Officials fear “further yen appreciation would undermine the Japanese economy,’’ she said.
“We have conducted an intervention in order to suppress excessive fluctuations in the currency market,’’ said Finance Minister Yoshihiko Noda.
But there was widespread skepticism that Tokyo can keep the yen on a tight leash without coordinated action by major central banks around the world.
“The effect from Japan’s solo intervention won’t last very long. We have to see how the US and European monetary authorities would react,’’ said Yuji Kameoka, chief forex strategist at Daiwa Institute.
For example, if the US Federal Reserve sought to bolster the US economy by ramping up purchases of Treasurys to drive down interest rates, that would potentially weaken the dollar against other currencies, including the yen. “This could be a very tough time for Japanese authorities if the Fed really implements a massive quantitative easing,’’ Fujii said.
The yen’s rise has also underscored tensions with China. Some officials including the finance minister say China’s purchases of Japanese government bonds might be helping to drive the yen higher even as Beijing keeps its currency tightly controlled to protect the country’s exporters.