TOKYO (AFP) – Japan on Wednesday stepped into the currency markets for the first time since 2004 in a bid to stem the yen's appreciation against the dollar and safeguard a faltering recovery.
The move came a day after Prime Minister Naoto Kan reaffirmed his leadership in a ruling party election victory that saw off a candidate outspoken in his calls for intervention to help safeguard Japan's recovery.
|AFP/File – Money dealers are seen at a foreign exchange market in Tokyo on September 14, 2010.|
The yen fell to 85.03 to the dollar at around 0430 GMT following the yen-selling, dollar-buying intervention, which was triggered by the Japanese unit's earlier surge to a fresh 15-year high of 82.86.
The euro strengthened to 110.32 yen from 107.75.
"We conducted a market intervention," Finance Minister Yoshihiko Noda told reporters. "We will continue to monitor the movement of the market and take determined steps, including intervention, when necessary."
After weeks of trying in vain to talk the yen lower through verbal warnings, the government's tone had hardened ahead of Wednesday's decision.
The yen's appreciation has put many Japanese exporters at a disadvantage against foreign rivals as it erodes their repatriated earnings and competitiveness.
Noda said the move was made unilaterally, but added Japan had been in touch with foreign governments amid qualms from the likes of Europe and the United States that exchange rates should be kept free-floating.
There was no immediate comment from the US Treasury.
"Our country's economy is still in a very severe situation with continued deflation," said Noda.
The yen's rapid appreciation "harms the stability of the economy and finances. We cannot tolerate it."
Noda did not reveal the size of the intervention but Dow Jones Newswires cited traders as saying Japan's Ministry of Finance had initially sold between 200 and 300 billion yen (2.4 billion and 3.6 billion dollars).
In a statement Bank of Japan governor Masaaki Shirakawa said uncertainty over the US economy meant downside risks to Japan "warrant attention".
"The Bank of Japan strongly expects that the action taken by the Ministry of Finance in the foreign exchange market will contribute to stable foreign exchange rate formation."
The central bank has come under government pressure to do more to offset the impact of the strong yen on Japan's economy, and recently expanded a multi-billion-dollar loan scheme in an effort to help revive a recovery.
A recent government survey suggested many companies were considering moving production overseas if the yen stayed high, casting a shadow over the nation's recovery.
"Japan needed to intervene in order to try to prevent the yen rising to levels that would push exports lower and send the economy back into recession," said Macquarie Bank's Richard Jerram.
The strong yen also makes imports cheaper, prolonging a cycle of deflation that has hurt Japan for years as consumers defer purchases in the hope of further price falls.
News of the intervention also sent the dollar higher against other currencies including the Korean won, Taiwan dollar, Singapore dollar and Chinese yuan, which fell quickly.
Analysts say central banks in the region, which intervene often in forex markets, now have a stronger argument to weaken their own currencies and boost the competitiveness of their own export sectors.
Wednesday's move buoyed Tokyo shares. The benchmark Nikkei index surged 3.0 percent, with exporters rising.
"Further intervention is likely over coming days and weeks," said Mitul Kotecha, head of global forex strategy with Credit Agricole.
But analysts are divided on how effective such moves will be in the long term, given the yen remains a safe haven compared to other major units amid fears over the global economy.
Japan "is clearly not a safe haven in terms of having bright economic prospects, but rather that its central bank is not showing the same readiness to de-base the currency" as overseas counterparts, said Jerram.