G7 banks rare currency action after yen surge
TOKYO/NEW YORK |
(Reuters) - A coordinated move by central banks of rich nations to stabilize the yen appeared to be working on Friday, tamping its value down afterJapan's devastating earthquake and nuclear crisis triggered a yen surge and raised fears about the global economy.
The action by the Group of Seven, in which they poured billions of dollars into markets, was the first joint intervention in currency markets since the G7 came to the aid of the newly launched euro in 2000.
The U.S. dollar surged two full yen to as much as 81.98 yen in response, up from a record low of 76.25 hit on Thursday. It dropped back to under 81 yen in early afternoon trade but remained above what some analysts suggested was a psychologically important level of 80 that could heighten chances of more intervention.
The G7 move reflected concern that a soaring yen could curb Japan's exports and throw the world's third largest economy back into recession, slowing global growth and sapping market confidence.
The yen's surge in the wake of the earthquake and tsunami may have seemed counter-intuitive at first glance, but it reflected, in part, market speculation that Japanese firms and the Japanese government will repatriate money now invested overseas in order to pay insurance claims and the cost of rebuilding.
Traders on Friday estimated the Bank of Japan alone bought more than $25 billion, paying with yen to effectively weaken the currency's value by boosting the supply.
Every member of the G7 was involved in Friday's market intervention, a massive show of unity designed to brush back speculators who might have been more willing to question the resolve of Japan if it had attempted the effort alone.
The U.S. Federal Reserve, Bank of England, Bank of Canada and European Central Bank, which represents all 17 countries that use the euro, each separately confirmed they were intervening to keep the yen's value from climbing.
The action helped settle equity markets, which had seen heavy selling in volatile trade since the earthquake and tsunami struck Japan last Friday and triggered a crisis at nuclear power plants. Investors have struggled to get a handle on the economic fallout.
Tokyo Electric Power Co (9501.T) on Friday afternoon North American time said it had connected an external power cable to the stricken Fukushima Daiichi nuclear plant, a first step toward restarting the plant's cooling pumps as it races to prevent a catastrophic radiation leak.
"The impact on the Japanese economy in isolation is likely to be contained, but the ripple effects could be substantial, and perhaps long-lasting," the Institute of International Finance, which represents global banks, said in a statement.
Japan's deputy finance minister, Fumihiko Igarashi, warned that currency traders shouldn't consider the intervention a one-time-only move, pledging that the G7 would "act decisively" again if speculators tried to push the yen higher.
"G7 countries agreed that if we caved in to such speculators that took advantage of people's misfortunes, the Japanese economy would be ruined and the whole world economy would be harmed," Igarashi told Reuters in an interview.
"Our stance remains unchanged that we will take decisive steps against speculators who act like sneaky thieves at a scene of a fire.
The G7, in its statement Thursday night announcing the decision to intervene, said that "excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability."
