TOKYO (MarketWatch) -- The yen plunged against its rivals Wednesday after Japan conducted its first foreign exchange intervention in six and a half years.
The move by Japan's Ministry of Finance, the country's authority for intervention, pushed the yen down sharply against the dollar, euro and other currencies. Dealers said Japanese authorities repeatedly bought the dollar against the yen, starting in morning trade in Tokyo around 0130 GMT. That sent the greenback to a high of Y85.14 in the afternoon, up from the fresh 15-year low at Y82.87 the currency had marked in the morning shortly before the intervention began.
Local traders estimated the yen sales at around Y200 billion to Y300 billion ($2.4 billion to $3.6 billion) in the first few minutes alone, and said the intervention continued even after the dollar climbed above Y85.
But dealers questioned whether even sustained intervention could help the dollar against the yen, as the greenback remains plagued by broader problems, chief among them expectations that weak U.S. economic data could prompt the U.S. Federal Reserve to take further easing action ahead. While Tokyo's decision to step into markets after the dollar fell below Y83.00 will likely keep the U.S. unit above that level in the near term, many dealers are skeptical that Japan will be able to keep the dollar above Y85.00, a level they say the government is likely targeting.
"I'd give the yen about a 60% chance of staying strong," said Hideki Amikura, deputy general manager at Nomura Trust and Banking. Any signals on further easing from the Fed's Open Market Committee, which meets next week, could frustrate the Japanese government's attempts to push up the dollar-yen rate, Amikura said. For those reasons, the dollar is likely to trade in a Y83.00-Y85.00 band in the coming weeks, as Japanese exporters and other market participants sell the currency on any further rises, he said.
At 0550 GMT, the dollar stood at Y84.95, up from Y83.08 late Tuesday in New York. The euro was also sharply higher against the yen, at Y110.32 from Y108.20. The common currency was lower against the dollar, at $1.2989 compared with $1.3020. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies including the yen and euro, was up at 81.542 from 81.074.
News of the Japanese intervention also sent the dollar higher against other currencies, in particular the euro and the British pound. Asian currencies including the Korean won, Taiwan dollar, Singapore dollar and Chinese yuan also fell quickly, as analysts say that central banks in the region, which intervene often in foreign exchange markets, now may have a stronger argument to weaken their own currencies and boost the competitiveness of their own export sectors.
Bank of Japan Gov. Masaaki Shirakawa said Wednesday he hopes the government's yen-selling intervention will stabilize the forex market, following the recent yen rally. He also said that the BOJ will continue to maintain "strong monetary easing."
But Shirakawa didn't say whether the central bank will sterilize the funds released for the intervention -- a key point since an unsterilized intervention would increase Japan's monetary base, potentially creating some inflation in the deflation-stricken country. The Nikkei reported that the central bank had decided Wednesday not to absorb the funds that flew into the currency market through the intervention, citing sources familiar with the matter.
Observers expressed skepticism that Japan's intervention will result in a weaker yen against the dollar on a sustained basis, given the dollar's strong downtrend in recent months, as U.S. rates fell on expectations that the Fed will keep an ultra-easy monetary policy in place at least until late 2011 or 2012.
"Intervention can't stop the trend and certainly can't reverse it," said Richard Yetsenga, a Hong Kong-based forex strategist with HSBC.
Japan's Finance Minister Yoshihiko Noda said Wednesday that Japan's intervention was a unilateral move. U.S. Treasury officials declined to comment immediately, but any later reaction from Washington will be watched with interest, given the general U.S. stance against forex interventions.
copied from http://www.marketwatch.com/story/world-forex-yen-plunges-vs-rivals-after-japan-intervenes-2010-09-15
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