Thursday, March 17, 2011

G7 intervention to curb the yen | Group of Seven

G7 intervention to curb the yen | Group of Seven: "The G7 group of major economies has agreed on a joint intervention in currency markets to stabilise the yen after its recent record run in the wake of the country's devastating earthquake and tsunami.

The G7 announced that its member nations would sell the yen as markets opened today.

'Given yen moves after the tragic events that hit Japan, the United States, Britain, Canada and the European Central Bank have agreed with Japan to jointly intervene in the currency market,' Finance Minister Yoshihiko Noda told reporters.
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Japanese authorities will sell yen to buy US dollar in the market today. Other central banks will act when their markets open, Mr Noda said. He declined to comment on the size of Tokyo's intervention.

'When Japan is in such a state, it's extremely meaningful for G7 countries to cooperate and take coordinated action to stabilise financial markets,' he said.

The US dollar spiked about 2 yen to above 81 yen this morning, after the announcement.

“This is not just one central bank, this is seven. It’s a brave man to be on the other side of that trade,” said Rochford Capital managing director Thomas Averill.

The US dollar jumped to 81.20 yen from roughly around 79.20 yen. The dollar last stood at 80.65 yen, up 2.2 per cent on the day, having pulled up from a post-World War II record low of 76.25 yen hit on Thursday.

The Australian dollar also surged and was recently buying 80.60 yen, from around 77.50 before the announcement, up more than 3 per cent on the day. Still, it remains down about the same amount for the week.

In Tokyo, shares jumped on the decision, with the Nikkei 225 index rising 2.6 per cent to 9083.95 in early deals.

'This is the first coordinated intervention we have seen since 2000, so it's going to have a very huge resonating effect on the market,' said Kathy Lien, director of currency research at GFT in New York.

Commonwealth Bank chief currency strategist Richard Grace said he expects the US dollar to rise over 83 yen in the next 24 hours, while the Aussie dollar continues to strengthen in a relief rally, following sharp drops over the past week.

However, any developments in the Middle East could act as a counterweight on the Aussie dollar's recent rise against the US dollar, he said.

Westpac Global Markets currency strategist Sean Callow said he believes the central bank intervention will be effective in keeping the yen weak.

'History tells us that coordinated intervention has a much greater chance of success,' he said. 'History tells us that intervention that works hand in hand with monetary policy is also likely to be more successful.

'And this is very much the case here,' said Mr Callow.

'The Bank of Japan has been flooding financial markets with liquidity for days now,' he said. Earlier today Japan's central bank announced that it would purchase ten trillion yen of reconstruction bonds from the Ministry of Finance. 'That is another 10 trillion in yen of liquidity being pumped into the system,' he said.

'So on both counts this yen intervention is likely to be successful,' said Mr Callow.

Tokyo last intervened in the currency market on its own on September 15, when it sold 2.13 trillion yen, a record amount for a single day.

The US, Japan, Germany, France, the UK, Italy and Canada make up the Group of Seven.

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