Yen Weakens as Japan Intervenes for the First Time Since 2004
Yen Drops From 15-Year High After Japan Intervenes in Market
Tomohiro Ohsumi/Bloomberg
Yoshihiko Noda, Japan's finance minister.
Yoshihiko Noda, Japan's finance minister. Photographer: Tomohiro Ohsumi/Bloomberg
{Corrects job title in first paragraph.} Sept. 15 (Bloomberg) -- Ben Collett, head of Japanese equities at Louis Capital Markets (Hong Kong) Ltd., talks about the effect of Japan's currency market intervention to try and halt the yen's gains. He speaks with Andrea Catherwood on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Sept. 15 (Bloomberg) -- Tomoko Fujii, a foreign-exchange strategist at Bank of America Merrill Lynch, talks about Japan's first intervention in the currency market since 2004 to stem a surge in the yen. She speaks from Tokyo with Maryam Nemazee on Bloomberg Television's "Countdown." (Source: Bloomberg)
Sept. 15 (Bloomberg) -- Richard Yetsenga, the Hong Kong-based global head of emerging-markets currency strategy at HSBC Holdings Plc., talks about Japan's intervention in the foreign exchange market. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
Sept. 15 (Bloomberg) -- Adam Gilmour, co-head of foreign exchange and derivatives sales at Citi Asia-Pacific, talks about the outlook for further interventions by Japan to stem gains in the yen. Gilmour speaks from Singapore with Andrea Catherwood on Bloomberg Television's "The Pulse." (Source: Bloomberg)
The yen tumbled from a 15-year high versus the dollar after Japan intervened for the first time since 2004 to curb gains that threaten an export-led recovery.
Japan’s currency slid the most in 19 months after Finance Minister Yoshihiko Noda said the nation unilaterally sold yen. The step comes a day after Japanese Prime Minister Naoto Kan won reelection as the head of the ruling party, beating a candidate who had insisted intervention was necessary. China’s yuan rose earlier to the highest level since 1993 against the dollar on speculation the central bank will allow faster appreciation as inflation accelerates and foreign pressure mounts.
“The BOJ is aiming to stop the yen from appreciating more rather than significantly weakening it,” said Paul Robinson, head of European currency strategy at Barclays Capital in London. “If the U.S. loosens monetary policy further next week then the pressure on the dollar to the downside against the yen will increase.”
The yen slid 2.5 percent to 85.11 per dollar at 6:26 a.m. in New York, after earlier slipping 3 percent to 85.52, the biggest drop since February 2009. It was as strong as 82.88 earlier, the highest level since May 1995. The yen weakened 2.4 percent to 110.50 per euro. The euro was at $1.2983 from $1.2998.
The Nikkei 225 Stock Average jumped 2.3 percent after earlier losing as much as 1.1 percent. The Stoxx Europe 600 Index dropped 0.4 percent.
‘Break the BOJ’
Japan’s Chief Cabinet Secretary Yoshito Sengoku said he believes the Finance Ministry considers 82 yen per dollar to be the line of defense to prevent currency strength from harming the economy. Sengoku also said the government is seeking to gain the understanding of the U.S. and Europe for the intervention.
“The Japanese authorities are going to have keep intervening for a long period now, at least into year-end,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London. “A line in the sand at 82 could prove to be naive as the market now has an explicit level to target in an attempt to break the BOJ.”
The BOJ’s intervention in the currency market may have exceeded 100 billion yen, the Nikkei newspaper reported, without citing anyone. The central bank started selling the yen against the dollar at 10:30 a.m. in Tokyo, Tomoko Fujii, a foreign- exchange strategist at Bank of America Merrill Lynch, wrote in a note to clients.
Success ‘Difficult’
Bank of Japan Governor Masaaki Shirakawa said today in a statement he hopes currency intervention will stabilize the foreign exchange market. Board member Tadao Noda said the central bank must take swift, decisive policy action should downside risks for the economy materialize.
U.S. Treasury spokeswoman Natalie Wyeth declined to comment on Japan’s announcement when reached by telephone.
“It’s very difficult to see this succeed unless it’s going to be supported by the Federal Reserve or the European Central Bank,” said Mitul Kotecha, global head of currency strategy at Credit Agricole CIB in Hong Kong. “The causes of dollar-yen moving lower haven’t changed. Fundamentally, it’s not due to events in Japan, but due to events in the U.S. and elsewhere.”
Japan’s intervention may be more successful than markets expect, Citigroup Inc. said.
“There’s this prevailing wisdom that it’s going to be tough for Japan to succeed but we think the market is far too complacent,” said Todd Elmer, a Singapore-based currency strategist at Citigroup.
‘Unusually Direct’
Noda’s “unusually direct” comments while confirming the move to weaken the yen suggest this is “strong conviction” intervention, Citigroup analysts wrote in a research note today.
The Swiss National Bank earlier this year abandoned efforts to weaken its currency, which reached a record high against the euro this month. The franc and the yen tend to strengthen during periods of financial stress because their export-reliant economies don’t need foreign capital to balance current accounts -- the broadest measure of trade.
The SNB lost more than 14 billion Swiss francs ($14 billion) on foreign-currency holdings in the first half after a plunging euro eroded the value of the bank’s reserves. The Swiss central bank, led by Philipp Hildebrand, was forced to buy billions of euros to counter an appreciation of the franc, fight deflation risks and protect the country’s export-led recovery.
Exports accounted for more than half Switzerland’s gross domestic product in the second quarter, while the figure was 16 percent in Japan and 13 percent in the U.S., Bloomberg data show.
‘Appropriate’ Timing
“If Japan continues intervening, it increases the risk of losses on such operations, just like what happened to the Swiss National Bank,” said Akio Yoshino, who helps oversee the equivalent of $35 billion as chief economist at Amundi Japan Ltd. in Tokyo. “The timing of the action was appropriate and can send the yen to around 85-86 to the dollar.”
The previous time Japan intervened in the currency markets was March 16, 2004, when the yen was around 109 per dollar. The Bank of Japan sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998, purchasing 3.05 trillion yen as the exchange rate weakened to 147.66.
The yen climbed this year as speculation Europe’s sovereign debt crisis will worsen and the U.S. economic recovery will slow boosted demand for the relative safety of the Japanese currency.
Central banks intervene in the foreign exchange market when they buy or sell currencies to influence exchange rates.
‘Fast and Furious’
“The Japanese authorities need to be aggressive now and hit the market hard, fast and furious because as time goes on, the announcement effect will dissipate,” David Bloom, global head of currency strategy at HSBC Holdings Plc. in London, wrote in a client note today.
The People’s Bank of China fixed the yuan’s reference rate at a record high before the U.S. House Ways and Means Committee convenes a two-day meeting today to discuss the Asian nation’s currency policy. Larry Summers, head of President Barack Obama’s National Economic Council, met with Chinese officials in Beijing last week, while Treasury Secretary Timothy F. Geithner said China must let the yuan rise more quickly.
“Summers may have delivered to Chinese officials the U.S. government’s message on the currency during his visit,” said Shen Minggao, head of China research in Hong Kong at Citigroup Inc. “Also, some appreciation is necessary as China’s inflation is at such a high level.”
The currency was little changed at 6.7433 per dollar. It touched 6.7250, the strongest level since the central bank unified official and market exchange rates at the end of 1993. The yuan has strengthened 0.8 percent in the past five days.
To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Bo Nielsen at bnielsen4@bloomberg.net
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