Yen weakens as Japan intervenes; drop seen fleeting

NEW YORK Thu Aug 4, 2011 4:39pm EDT

A picture illustration shows Japanese 10,000 yen notes featuring a portrait of Yukichi Fukuzawa, the founding father of modern Japan, taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

A picture illustration shows Japanese 10,000 yen notes featuring a portrait of Yukichi Fukuzawa, the founding father of modern Japan, taken in Tokyo August 2, 2011.

Credit: Reuters/Yuriko Nakao

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NEW YORK (Reuters) - The yen fell sharply on Thursday after Japan intervened to curb its strength to support the country's export-led economy, but analysts did not expect any lasting impact given the widespread concerns about the global economy.

Official yen-selling pushed the dollar roughly 4 percent higher to a session peak of 80.25 yen on trading platform EBS, well off a low of 76.29 set on Monday. On Wednesday, the Swiss National Bank had unexpectedly cut interest rates to cap a soaring Swiss franc.

The Japanese currency trimmed losses during New York trading, however, while the franc gained broadly as investors' strong demand for safe-haven assets persisted on fears a recovery in the global economy is losing momentum.

"The fact that our equity, bond and FX indicators reveal a good number of real-money investors are seeking safety in respective asset markets and it's not just speculative activity driving the Swiss franc and yen higher suggests risk appetite is firmly on the back foot," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.

The dollar last traded at 79.08 yen, up 2.7 percent. The euro gained 1.1 percent to 111.52 yen.

Japan sold one trillion yen ($12.6 billion). Finance Minister Yoshihiko Noda said Japan had consulted its international partners but acted on its own. The intervention in Asia and London pushed the yen to a three-week low against the dollar.

To support those efforts to weaken the yen, the Bank of Japan eased monetary policy by boosting asset purchases.

Japan's yen selling was its first since March 18 when the Bank of Japan and other major central banks jointly intervened after the yen surged to a record high versus the greenback.

Commerzbank analyst Lutz Karpowitz said, however, that efforts by both Japan and Switzerland to weaken their currencies were unlikely to spark a trend reversal.

"There are hardly any alternatives for investors looking for a safe haven within the G10 universe," Karpowitz wrote in a note. "This fact is likely to prevent a stronger upward correction in dollar/yen. In the end we are therefore likely to see a sideways move."

The euro was last down 1.6 percent at $1.4101, having hit a two-week low of $1.4098 on EBS.

Traders noted more automatic sell orders under the $1.4100 area, with a break likely opening the way for a move lower to around $1.4068, the July 19 low.

The ECB said after leaving interest rates at 1.5 percent that it would broaden its liquidity operations and revive its bond buying program by buying Portuguese and Irish bonds.

But the Italian government bond yield premium over Bunds rose to euro era peaks on signs that the ECB had no immediate plans for buying Italian and Spanish bonds.

The ECB also acknowledged that economic growth in the euro zone had slowed in the past few months.

"The main takeaway from today's announcement is the limited prospects for further ECB tightening, which should weigh on the euro," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.

(Additional reporting by Julie Haviv; Editing by Chizu Nomiyama)

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Comments (2)
Pete_Murphy wrote:
Currency manipulators. Slap them with import tariffs.

Aug 03, 2011 11:31pm EDT  --  Report as abuse
OrSpeeder wrote:
Go hiperinflaction!!!

I am from Brazil… to buy 1 USD, you needed 2 BRL half a year ago. Now we are in the 1.5 range… The government here is so desperate that now it is scaring away investors by doing stupid things (literally O.o) in a attempt to control BRL value.

The entire world is trying to keep USD and EUR valued, while they are suffering from inflaction in their home countries because of the home countries crisis.

All other countries thus are inflating their own currencies…

If that do not stop, we might see the first worldwide hiperinflaction…

Instead of Weimar, Zimbabwe and Brazil, people will say Weimar, Zimbabwe, Brazil, entire world.

Aug 04, 2011 8:17am EDT  --  Report as abuse
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