The Japanese yen extended its decline Wednesday as Japan intervened in the currency markets for the first time since 2004. It stemmed the yen’s appreciation against the dollar, fueling a rise in the U.S. dollar above ¥85.
This Wednesday’s decision was given after the government’s tone had hardened. The government spent weeks trying in vain to verbally warn the yen’s depreciation.
If yen continues to rise, Japanese exporters suffer from disadvantage against rivals abroad. Along with making imports cheaper, the strong yen prolonged a cycle of deflation. Unless the yen kept low, many businesses were taking into consideration of moving production overseas.
Prime Minister Naoto Kan had reaffirmed his leadership in ruling party election victory before the action was given. Finance Minister Yoshihiko made sure that his ministry stepped into the currency markets, without specifying the amount of intervention, adding continuity to monitor the movement of the market and take determined steps and that that the intervention was targeted at constraining excessive foreign-exchange fluctuations.
According to Kathy Lien, the dollar’s appreciation against the yen should “last for at least a few days before the lows were tested once again.
According to Mitul Kotecha, head of foreign-exchange strategy at Credit Agricole, it is likely that the intervention will be over the next days and weeks.
However, the Ministry of Finance’s step in the foreign exchange market will “contribute to stable foreign exchange rate information”. Masaaki Shirakawa noted that there may be uncertainty over the U.S. economy . This meant downside risks to Japan “warrant attention”. Recently the Bank of Japan implemented a scheme to help revitalize a recovery.
Following move, the dollar bought as much as ¥85.13. The euro strengthened to 110.32 yen from 107.75. The dollar index was traded at 81.691, down from 81.064 late North American trading yesterday.
The yen’s decline lifted Japanese shares as investors cheered the government’s move. The Nikkei Stock Average closed 2.3% higher and the broader Topix 1.7%.
Exporters’ shares joined the rally. Shares of Sony advanced 4.1% while Toyota jumped 3.8%. In the banking sector, Sumitomo Mitsui Financial Group Inc rose 0.4%.