G7 acts to restrain rising yen
By Wayne Cole |
March 19, 2011, Saturday
|
Print Edition
Print Edition
THE Group of Seven rich nations yesterday agreed to join in rare concerted intervention to restrain a soaring yen and calm global markets after a wild week of panicky trading as Japan scrambled to prevent a meltdown at a nuclear power plant.
The US dollar surged to as far as 81.70 yen, leaving behind a record low of 76.25 hit on Thursday as the Bank of Japan kicked off the joint action. Media reported it bought more than US$25 billion.
Japan's Nikkei share index rose 2.7 percent, but still closed down about 10 percent on the week, which wiped US$350 billion off the stock market.
The last time the G7 agreed on joint intervention was a decade ago to turn a slumping euro following its 1999 launch.
The G7 show of solidarity with disaster-hit Japan came as a surprise to many because Tokyo had indicated it was looking for moral support for its attempts to calm markets rather than joint action.
Japan's Finance Minister Yoshihiko Noda said the Bank of Japan had begun to sell yen at 0000 GMT and other central banks from the G7 would intervene as their markets opened.
"This is the first coordinated intervention that we have seen since 2000 so it's going to have a very huge resonating effect on the market," said Kathy Lien, director of currency research at GFT in New York.
"Because the only type of intervention that actually works is coordinated intervention, and it shows the solidarity of all central banks in terms of the severity of the situation in Japan."
On Thursday, the yen had soared to a record high of 76.25 per dollar, eclipsing its historical peak of 79.75 hit in the aftermath of the Kobe earthquake. The yen soared amid speculation Japanese firms would repatriate some of their huge foreign assets to help meet insurance claims and pay for reconstruction.
A strong yen could make it more difficult for the heavily export-dependent Japanese economy to recover from the triple blow of last week's earthquake, tsunami and nuclear threat. The damage toll is already estimated at up to US$200 billion with Japan almost certain to slip back into recession.
G7 financial leaders may be worried that a surge in yen repatriation could unsettle global markets, creating a crisis of confidence that spreads from Asia to Europe and the United States.
"As we long have stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability," the G7 said.
The G7 comprises Canada, France, Germany, Italy, Japan, the United Kingdom and the US.
The US dollar surged to as far as 81.70 yen, leaving behind a record low of 76.25 hit on Thursday as the Bank of Japan kicked off the joint action. Media reported it bought more than US$25 billion.
Japan's Nikkei share index rose 2.7 percent, but still closed down about 10 percent on the week, which wiped US$350 billion off the stock market.
The last time the G7 agreed on joint intervention was a decade ago to turn a slumping euro following its 1999 launch.
The G7 show of solidarity with disaster-hit Japan came as a surprise to many because Tokyo had indicated it was looking for moral support for its attempts to calm markets rather than joint action.
Japan's Finance Minister Yoshihiko Noda said the Bank of Japan had begun to sell yen at 0000 GMT and other central banks from the G7 would intervene as their markets opened.
"This is the first coordinated intervention that we have seen since 2000 so it's going to have a very huge resonating effect on the market," said Kathy Lien, director of currency research at GFT in New York.
"Because the only type of intervention that actually works is coordinated intervention, and it shows the solidarity of all central banks in terms of the severity of the situation in Japan."
On Thursday, the yen had soared to a record high of 76.25 per dollar, eclipsing its historical peak of 79.75 hit in the aftermath of the Kobe earthquake. The yen soared amid speculation Japanese firms would repatriate some of their huge foreign assets to help meet insurance claims and pay for reconstruction.
A strong yen could make it more difficult for the heavily export-dependent Japanese economy to recover from the triple blow of last week's earthquake, tsunami and nuclear threat. The damage toll is already estimated at up to US$200 billion with Japan almost certain to slip back into recession.
G7 financial leaders may be worried that a surge in yen repatriation could unsettle global markets, creating a crisis of confidence that spreads from Asia to Europe and the United States.
"As we long have stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability," the G7 said.
The G7 comprises Canada, France, Germany, Italy, Japan, the United Kingdom and the US.
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