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Yen sinks as G-7 nations agree to intervene with Japan

March 17, 2011 |  5:57 pm

Noda2 The Group of 7 industrialized nations agreed Thursday to act together to try to stop the Japanese yen from rising further, hoping to avert more damage to the country’s battered economy.

The decision, announced by Japanese Finance Minister Yoshihiko Noda in Tokyo, came after the yen’s value had surged to a record 78.89 per dollar in Asian trading Thursday from 79.39 on Wednesday and about 83 a week earlier.

The news quickly knocked the yen back to 81.32 per dollar in Asian trading Friday. The Japanese stock market rallied, with the Nikkei-225 index up 2.8% to 9,211 in the first hour of trading.

A joint intervention is highly unusual and shows that Japan and its allies are serious about restraining the yen. The last such joint agreement to intervene in currency markets was in 2000, when the G-7 sought to bolster the sinking euro.

The yen has been gaining in part as currency traders bet that Japanese companies and investors will sell some of their foreign assets to bring money home in the wake of the devastating earthquake and tsunami. A flow of money back to Japan would boost demand for yen.

But each tick higher in the yen threatens Japan’s exporters by making their products more expensive for foreign buyers. That would be another blow to Japan, already reeling from massive quake and tsunami damage and from the nuclear-reactor crisis that has followed.

From the G-7 statement issued after a teleconference meeting of finance ministers and central bank authorities:

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 United States, the United Kingdom, Canada and the European Central Bank will join  with Japan on March 18 in concerted intervention in exchange markets.

As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate.

The most likely course of intervention is for the G-7 to sell yen and buy dollars. The G-7 nations are Britain, Canada, France, Germany, Italy, Japan and the United States.

-- Tom Petruno

Photo: Yoshihiko Noda, Japan's finance minister, left, and Masaaki Shirakawa, governor of the Bank of Japan, right, speaking to reporters after the G-7 teleconference. Credit: Haruyoshi Yamaguchi /Bloomberg News