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Yen Falls on G7 Intervention; Japan to Continue Loose Stance

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As G7 leaders set in motion a coordinated intervention designed to halt the rise of the yen, Japan continued its own ultra-loose monetary policy, flooding banks with cash to keep interest rates low. While the yen fell in response, the effect in European time was said to be limited as speculators bought into the selloff.

Reuters reported that all G7 central banks had agreed to the move. Meanwhile, Masaaki Shirakawa, governor of the Bank of Japan (BOJ), repeated his institution’s resolve to keep its loose monetary policy in place, telling reporters after the G7 announcement on Friday, "The Bank of Japan will promote powerful monetary easing and continue providing ample liquidity to ensure market stability."

In early European trading, the dollar rose as high as 82 yen. The markets have been anticipating a flow of yen back to Japan in a repatriation after the earthquake/tsunami/nuclear disaster, but analysts are expecting that Tokyo will continue to protect the yen until the end of Japan’s fiscal year on March 31.

Adam Myers, senior currency strategist at Credit Agricole CIB, was quoted saying, "It will be interesting to see whether any speculators will be brave enough to try and push the dollar down through 80 yen again. If they are, I'm sure the BOJ will … quickly move it back up to 82 yen. It will be a losing game for anyone who tries to bet against them."

Japanese intervention was estimated at 2 trillion yen ($25 billion) over the course of the day, and market participants pegged European intervention as considerably lower. A trader in London was quoted saying, "They simply must do more [if they want to have a bigger impact]. Maybe everyone's waiting for the Fed." Another London trader said in the report, "The intervention needs to be concerted and aggressive … and even then I'm skeptical."