The yen declined the most in more than two years against the dollar as the Group of Seven nations jointly intervened in foreign-exchange markets for the first time in more than a decade.
Japan’s currency slumped against all its major counterparts as the Federal Reserve and Bank of Canada joined the Bank of Japan and European central banks in an effort to sell the yen. G-7 finance ministers and central bank chiefs said after a conference call yesterday to discuss the impact of the March 11 earthquake that they will “provide any needed cooperation.”
“The G-7 has given its full support to help stabilize the market and to help prevent the yen from strengthening further,” Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “With policy makers stating that further monetary policy easing is forthcoming, we expect the yen to continue weakening following the intervention.”
The Japanese currency weakened as the Fed and BOC’s actions followed those of the Bank of Japan, the European Central Bank, the Bank of England, the Bank of France, Germany’s Bundesbank and the Italian central bank. Japan’s authorities probably sold less than 2 trillion yen ($25 billion) in today’s foreign- exchange market intervention, a Japanese government official told reporters in Tokyo.
“Coordination is happening because of sympathy for Japan, given the tragic disaster that has occurred. It is designed to support Japan and to stabilize Japan,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc., during a call with clients and reporters today. “It’s highly likely that BOJ is going to be there for much longer and that the 80 level is going to be defended much more forcefully and much more persistently.”
The yen’s decline against the dollar will be temporary unless it’s supported by higher U.S. interest rates, according to JPMorgan Chase & Co. The move shouldn’t be a “trend- changer,” said John Normand, the London-based head of currency strategy at JPMorgan.
“The more relevant question is whether such a policy would support the dollar-yen and the euro-yen for long,” wrote Normand in an e-mailed note. “History isn’t on the G-7’s side. The major concentrated interventions -- Louvre in 1987, euro in 2000 --only turned trends when reinforced by central bank tightening, so Fed policy will negate whatever the G-7 do.”
The U.S. central bank has kept its benchmark lending rate at zero to 0.25 percent since December 2008. The Fed will boost the rate by 25 basis points in the last three months of the year, according to the median forecasts.
The yen’s weakness may be short-lived as Japan would need as much as $500 billion to intervene in markets just to match its previous efforts to curb the currency’s strength, according to Deutsche Bank AG.
An intervention of that magnitude will add about 10 percent of gross domestic product to Japan’s record debt level
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