Japan Acts to Weaken Yen
Japan sold the yen for the second time in less than three months after it hit another record high against the dollar on Monday, intervening to counter speculation that officials say is hurting the world's No. 3 economy.
The dollar vaulted more than 4 percent higher, heading for its biggest one-day gain in three years, and Finance Minister Jun Azumi said Tokyo would continue to intervene until it was satisfied with the results.
Still, some worried that the impact of the intervention would prove fleeting. Previous intervention since September 2010 had failed to prevent the yen from resuming its rally to hit fresh record highs against the dollar.
Japan's latest foray followed repeated warnings that its patience with the yen's strength was wearing thin, and came just days before the Group of 20 leaders' summit in Cannes, France.
The summit will focus on Europe's efforts to contain its sovereign debt crisis and avoid a repeat of the financial shock that roiled markets after the Lehman Brothers collapse in 2008.
But Tokyo is keen to win G20 understanding that a strong yen is one challenge too many for an economy grappling with a nuclear crisis, a $250 billion rebuilding effort from a March earthquake and tsunami and ballooning public debt.
Japan also says investors buy the yen as a safe haven from the euro zone debt crisis and stuttering U.S. growth. It argues such demand has nothing to do with the fragile health of the Japanese economy.
"We started currency intervention this morning in order to take every measure against speculative and disorderly moves and to prevent risks to the Japanese economy from materialising," Prime Minister Yoshihiko Noda told parliament.
The intervention came after the dollar touched a record low of 75.31 yen and pushed the world's main reserve currency up past 79 yen.
Noda, who took over as Japan's sixth premier in five years last month, served as finance minister in the previous cabinet and led three past interventions between September 2010 and August, including joint action with G7 partners in March 2011. The September 2010 intervention was Japan's first in six years.
Azumi said that while Japan acted solo on Monday, he remained in close contact with his international counterparts.
Several G20 nations, including Japan's exports rival South Korea, have intervened frequently in markets. But Japan is under more scrutiny as an issuer of one of three global currencies and does not want to be labeled as a currency manipulator.
Azumi has indicated after his past meetings with Group of Seven and G20 partners that they appreciated Japan's special circumstances.
Still, many voiced doubts about how long the impact of the intervention would last, including Honda Motor Chief Financial Officer Fumihiko Ike.
A dollar at 79 yen is helpful, Ike said, but he wanted the dollar to rise to at least 80 yen.
"Frankly, my reaction was: 'finally, they intervened.' But I'm also aware that a solo intervention has a limited impact," he said. "Will we be able to keep these levels" I'm not at all hopeful."
Takuji Okubo, chief economist at Societe Generale in Tokyo, said the government's goal appeared to be to halt the yen's further gains rather than weaken the currency and saw the yen resuming its climb sooner or later.
"I do think this is one of many interventions to come," Okubo told Reuters Insider.
Some, however, said Monday's action that followed Bank Of Japan's monetary easing last week, could keep the yen off its peaks for quite some time.
"It was very good timing. The BOJ has prepared the ground by easing last week. Speculators' yen-buying position has piled up, and intervention is most effective in such cases," said Yunosuke Ikeda, senior FX strategist at Nomura Securities.
BOJ Governor Masaaki Shirakawa was also hopeful the intervention -- conducted by the central bank on behalf of the finance ministry -- would have an impact.
"The BOJ strongly hopes that such moves will lead to currency market stability," he said in a speech.
PERSISTENT INTERVENTION
Azumi would not comment on the size of the intervention, but one trader said the authorities were intervening "quite persistently".
"My sense is that they might not quit very easily," a trader said.
The amount of intervention could match the 4.5 trillion yen ($59 billion) Tokyo sold on Aug. 4 in its biggest single-day intervention so far, said Mitul Kotecha, head of global currency strategy at Credit Agricole.
Even though the yen's exchange rate measured against a trade-weighted basket of currencies and adjusted for inflation is not far from its 30-year average, its dollar rate is much stronger than that used by Japanese exporters in their earnings projections.
That has led to a flurry of warnings from car makers, electronic firms and others that they might have no choice but to move more production abroad to cope.
Chipmaker Elpida warned it might have to move production overseas and Honda's chief executive said earlier this month that the company would half exports from Japan over the next decade because of the strong yen.
Last Thursday, acting in part out of concern that such "hollowing out" of the industry could derail Japan's recovery, Japan's central bank eased its monetary policy by boosting government bond purchases.
Japan's economy has been recovering from its post-quake recession with companies swiftly restoring production and supply chains and Tokyo has counted on reconstruction spending and robust emerging markets demand to sustain the momentum.
However, the yen's pressure on exporters' earnings and slowing global growth spurred them to act to prop up the recovery.