Japanese Government finally intervenes after 6 years
Japan’s Finance Minister Yoshihiko Noda confirmed that his ministry intervened in the foreign-exchange markets but didn’t specify the amount of intervention.
Noda also said the intervention was aimed at curbing excessive foreign-exchange fluctuations and that Japan had acted alone, according to reports. The ministry’s move was Japan’s first foreign-exchange market intervention in more than six years, Noda said.
Later Wednesday, the Nikkei business daily reported that the Finance Ministry and Bank of Japan were continuing to intervene in the currency markets “intermittently.”
The ministry and central bank apparently aim to keep the dollar in the ¥85 range or higher, the Nikkei report said, citing one market participant.
Following the market action, the dollar bought as much as ¥85.13, compared to its earlier Wednesday low of ¥82.85 — a more than 15-year trough. The greenback traded at ¥83.13 late Tuesday in New York. The decline in the yen helped buoy shares on the Japanese stock market, lifting the Nikkei Stock Average out of its morning losses to close 2.3% higher, while the broader Topix tacked on 1.7%.
Japanese exporters suffered on Tuesday with the yen strengthening after Prime Minister Naoto Kan defeated opponent Ichiro Ozawa to be re-elected as the leader of the Democratic Party of Japan.
Finance Minister Noda has been increasingly vocal over recent weeks about the prospects of intervention, threatening ‘bold’ action on several occasions, and the outcome of the election provided him with a more stable footing to carry out such intervention.
Finance Minister Noda said that other nations were contacted, but he was notably quiet about whether they supported the action.
For now, time will tell whether the intervention succeeds in engineering a sustainable weakening in the [yen], but more likely it will only result in smoothing the drop in [dollar-yen rate] over the coming months along the lines of what has happened with the [Swiss National Bank] interventions in [the euro/Swiss franc].
But for the intervention to be effective, it will require that doubts about U.S. growth recede, speculation of Fed quantitative easing dissipate and that interest rate differentials widen in favor of the U.S. dollar.