Yen Drops on G-7 Intervention as UN’s Libya No-Fly Vote Spurs Rally in Oil

The yen fell the most since 2008 versus the dollar and equities rose, with the Nikkei 225 (NKY) Stock Average paring its weekly drop, after central banks intervened to weaken Japan’s currency. Oil paced a gain in commodities.

The yen sank 3.7 percent to 81.83 per dollar as of 5 p.m. in Tokyo. The Nikkei 225 added 2.7 percent, trimming its biggest weekly slump in more than two years. The MSCI Asia Pacific excluding Japan Index climbed 1.1 percent. The Stoxx Europe 600 Index advanced 0.4 percent. Standard & Poor’s 500 Index futures increased 0.7 percent. Oil surged 1.8 percent in New York as the United Nations Security Council voted to ground Libyan leader Muammar Qaddafi’s air force. Corn and wheat rallied.

G-7 nations started joint intervention in the foreign exchange market for the first time in more than a decade after the yen soared to a post-World War II high, threatening Japan’s recovery from the record March 11 earthquake. Power may be restored to one of the crippled reactors at Tokyo Electric Power Co.’s Fukushima nuclear plant today, improving the odds that workers can prevent a meltdown and further radiation leaks.

“This is an extreme measure; coordinated intervention doesn’t happen often,” Kirby Daley, a Hong Kong-based senior strategist with Newedge Group’s prime brokerage business, said in a Bloomberg Television interview. “They’re coming in and they’re using the yen as a tool to keep stability in the Japanese equity markets.”

The yen, which soared to 76.25 per dollar yesterday, declined against all 16 of its most actively-traded peers. The currency fell 3.8 percent to 114.80 per euro. The Bank of Japan added 3 trillion yen ($37 billion) to the financial system in a one-day operation today, bringing its total emergency fund injections this week to 37 trillion yen.

‘Concerted Intervention’

“In response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the U.S., the U.K., Canada, and the European Central Bank will join with Japan, on March 18, 2011, in concerted intervention in exchange markets,” the G-7 said today in a statement.

Yields on Japan’s benchmark 10-year bonds added one basis point to 1.21 percent, rebounding from near the lowest level in two months. Treasuries fell, sending the yield on the benchmark 10-year note higher by one basis point to 3.26 percent. A basis point is 0.01 percentage point.

“One effect of joint intervention is that it gives calmness or stability to the market so the risk premium should fall,” said Satoshi Okumoto, who helps oversee the equivalent of $67.1 billion as a general manager at Fukoku Mutual Life Insurance Co. in Tokyo. “The flight to quality in terms of U.S. Treasuries should be weakened.”

Tepco Plant

Five-year credit-default swaps on Japan’s sovereign debt decreased 13 basis points to 104.5 basis points after climbing to a record 130 yesterday, according to Citigroup Inc. The Markit iTraxx Japan index of corporate borrowers fell 21 basis points to 129, its biggest drop since May 26, according to Citigroup and data provider CMA in New York.

Contracts insuring Tokyo Electric’s debt against default dropped 60 basis points to 305, according to Royal Bank of Scotland Group Plc. Shares of Tepco, as the company is known, climbed 19 percent after tumbling 62 percent in the first four days of this week.

Japanese soldiers and firefighters from Tokyo, using dozens of fire engines, doused sea water on reactor No. 3, site of an explosion earlier this week. Tepco said it will finish reconnecting a power line to the cooling system of the No. 2 reactor today, where white smoke or steam was observed. The power link would be used to restart pumps needed to pour cooling water on overheating fuel rods.

Weekly Slump

About 15 stocks gained for each that fell on the Nikkei 225 as the gauge dropped 10 percent this week, the steepest since the period ended Oct. 24, 2008. MSCI’s index of Asian markets outside Japan fell 1.7 percent this week, while the MSCI World Index dropped 2.5 percent, the biggest weekly loss in seven months. Declines in the first three days of this week wiped more than $1.8 trillion from global equity markets.

Woodside Petroleum Ltd. (WPL), Australia’s second-largest oil and gas producer, rallied 3.6 percent as oil prices rose.

Oil rose to $103.24 a barrel in New York, set for a third day of gains. Brent crude increased 1.1 percent to $116.20 a barrel in London after the UN voted to adopt a resolution that establishes a no-fly zone over Libya, that demands a cease-fire with rebels and that grants military authority to the U.S. and its allies to protect civilians and population centers.

Tightening Supply

“It may result in the UN having to take military action against Qaddafi and the prospect of that is not good for a peaceful resolution,” said Ben Westmore, a minerals and energy economist for National Australia Bank Ltd. in Melbourne. “The prospect of supply tightening is keeping a floor under oil prices.”

Qaddafi’s jets dropped bombs around Benghazi yesterday while security forces in Bahrain arrested opposition leaders after more than a month of Shiite-led protests calling for democracy and increased human rights.

Corn for May delivery paced an advance among grains today, rising 3.2 percent to $6.67 a bushel. Wheat futures jumped 2.7 percent to $7.2950 a bushel. The S&P/GSCI Index of 24 commodities advanced 1.5 percent after soaring 3.4 percent yesterday, the biggest one-day jump since September 2009.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net.

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net.

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