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Japan weakens yen for 1st time in 6 years by buying US$
By Tomoko A. Hosaka |
September 16, 2010, Thursday
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Print Edition
Print Edition
JAPAN waded into the currency market yesterday for the first time in six years, buying dollars to weaken the surging yen, which is battering famed Japanese manufacturers like Toyota and Sony after spiking to 15-year highs.
Prime Minister Naoto Kan surviving a leadership challenge the day before had driven the yen to its latest high as currency traders bet that intervention was unlikely on his watch.
The surprise move, a coordinated effort by the finance ministry and central bank, shows a newly empowered Kan stamping his authority on government policy and means the yen is now less of a one-way bet - even if the effects of intervention prove to be short-lived. Japanese officials would not provide a figure for how much yen the central bank sold in the market.
The currency has risen about 10 percent against the dollar this year, and business leaders had been pressing the government for help. A strong yen hurts exporters - the mainstay drivers of the country's still-fragile economic recovery. It erodes their foreign income when repatriated and makes their products less competitive in overseas markets. Toyota Motor Corp estimates that every 1-yen climb versus the dollar takes out 30 billion yen (US$351 million) from its 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.
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. The yuan has risen less than 1 percent against the dollar since mid-June when Beijing said it would allow it to trade more freely after keeping it virtually unchanged for 18 months.
After the Bank of Japan sold yen on yesterday morning, the dollar jumped above 85 yen from its earlier low of 82.87 yen. It was the first currency intervention since March 2004. Stock investors cheered the move, sending the Nikkei 225 stock average up by 217.25 points, or 2.3 percent, to close at 9,516.56.
"We have conducted an intervention in order to suppress excessive fluctuations in the currency market," said Finance Minister Yoshihiko Noda. "We will closely monitor currency developments, and take firm action including intervention," Noda said.
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. That suggests the stock market's advance could prove fleeting and that American manufacturers are likely to continue benefiting from a weak greenback.
Prime Minister Naoto Kan surviving a leadership challenge the day before had driven the yen to its latest high as currency traders bet that intervention was unlikely on his watch.
The surprise move, a coordinated effort by the finance ministry and central bank, shows a newly empowered Kan stamping his authority on government policy and means the yen is now less of a one-way bet - even if the effects of intervention prove to be short-lived. Japanese officials would not provide a figure for how much yen the central bank sold in the market.
The currency has risen about 10 percent against the dollar this year, and business leaders had been pressing the government for help. A strong yen hurts exporters - the mainstay drivers of the country's still-fragile economic recovery. It erodes their foreign income when repatriated and makes their products less competitive in overseas markets. Toyota Motor Corp estimates that every 1-yen climb versus the dollar takes out 30 billion yen (US$351 million) from its 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.
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. The yuan has risen less than 1 percent against the dollar since mid-June when Beijing said it would allow it to trade more freely after keeping it virtually unchanged for 18 months.
After the Bank of Japan sold yen on yesterday morning, the dollar jumped above 85 yen from its earlier low of 82.87 yen. It was the first currency intervention since March 2004. Stock investors cheered the move, sending the Nikkei 225 stock average up by 217.25 points, or 2.3 percent, to close at 9,516.56.
"We have conducted an intervention in order to suppress excessive fluctuations in the currency market," said Finance Minister Yoshihiko Noda. "We will closely monitor currency developments, and take firm action including intervention," Noda said.
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. That suggests the stock market's advance could prove fleeting and that American manufacturers are likely to continue benefiting from a weak greenback.
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