TOKYO |
(Reuters) - Japan intervened in the currency market and its central bank looked set to ease policy on Thursday in a concerted effort to stem a rise in the yen that Tokyo fears could derail the economy's recovery from the March earthquake.
Finance Minister Yoshihiko Noda said Japan had consulted its international partners, but acted on its own to stem what it considered speculative and disorderly currency moves.
The intervention followed days of official warnings that the currency had risen beyond level that the export-reliant economy could handle. It pushed the yen down as far as 78.47 per dollar from around 77 before the intervention.
"Japan is just in the process of recovering from a natural disaster, so these currency moves are certain to have a negative impact on the economy and financialmarkets," Noda told reporters. "As a result, we conducted current market intervention."
Thursday's action follows a surprise interest rate cut the Swiss central bank to ease the buying pressure on its currency, which like the yen had been attracting funds switching out of the dollar because of fears of a U.S. credit downgrade and concerns about the health of the world's biggest economy.
"Yesterday's monetary easing by Switzerland provided the push because if Japan didn't respond this would push the yen still higher," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities. "A response needed to be taken quickly to head off any further yen strengthening."
Noda told a news conference he expected the Bank of Japan to take appropriate action. The central bank said it would cut short its scheduled two-day meeting that started on Thursday.
A source familiar with the central bank's thinking told Reuters the BOJ was poised to announce an increase in its 10 trillion yen asset buying scheme.
There were growing signals that the Bank of Japan would seek to amplify the impact of yen selling in the market with policy easing, pumping more funds into the economy through increased purchases of government debt and other assets.
Noda declined to comment on the size of the intervention or
say what currencies Japan bought or sold. He would also not say whether Tokyo planned returning to the market, although traders said authorities continued sporadic intervention.
Analysts greeted Tokyo's intervention with skepticism, doubting a combination of direct yen selling and monetary easing could stem a global shift away from the dollar and other riskier assets.
"The impact from the intervention may be short-lived as the view that the yen is still a safe-haven currency hasn't changed amid concerns over the global economy," said Makoto Nagahori, head of equities at Instinet.
Some currency traders braced for further dollar declines should U.S. payroll data on Friday heighten concerns about the health of the U.S. economy. That could increase the chance of Japanese government intervention.
Prime Minister Naoto Kan's government, beset by record low popularity ratings and struggling to work out the details of a post-disaster plan for the nation's biggest rebuilding effort since World War Two, had been under growing pressure from businesses to tame the yen.
The world's third-largest economy had been expected to pull out of a brief post-quake recession later this year, but the yen's nearly 5 percent surge over the past month and signs of cooling global economy, cast doubt over that outlook.
Japan last intervened in concert with the Group of Seven in March, when expectations of fund repatriation after the earthquake pushed the yen to a record high. Tokyo last acted solo in September 2010, when it sold 2.1 trillion yen.
