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Thu 4 Aug 2011 08:59 AM

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Yen tumbles as Japan joins Swiss over FX

Currency reacts to Japan's efforts to curb yen strength to support exports

Yen tumbles as Japan joins Swiss over FX
(AFP/Getty Images)

The yen slid 2.7 percent versus the dollar on Thursday as Japan intervened to curb yen strength to support its export-led economy, one day after the Swiss central bank unveiled a shock cut in interest rates to cap a soaring Swiss franc.

Japanese Finance Minister Yoshihiko Noda confirmed that Tokyo had intervened in the currency market, adding that Japan had acted by itself and was communicating with other countries on the move.

Noda did not provide details, such as levels and the scale of the intervention, but currency market sources said the Bank of Japan was intervening repeatedly to push down the yen. Recent gains in the yen have sparked fears that it could weigh on the country's economic recovery.

"The BOJ is intervening continuously, lifting the dollar versus the yen. We can see its willingness to keep the dollar above 78 yen," one foreign exchange market source in Tokyo said.

There was a rumour that about $1bn were sold in the market at levels near 79 yen, suggesting that the BOJ may have sold roughly that amount in yen at such levels.

Market players were bracing for the possibility of more intervention later in the day.

"The BOJ is probably going to intervene more when London comes in," said Joseph Capurso, strategist at Commonwealth Bank of Australia in Sydney.

The dollar surged 2.7 percent on the day to 79.18 yen.

Earlier this week, the dollar hit a four-month low of 76.29 yen, close to its record trough of 76.25 yen in March. The latest strengthening caused consternation among Japanese exporters.

The BOJ said it would end its monetary policy meeting on Thursday, a day ahead of schedule, and a source familiar with the BOJ's thinking said it is expected to ease monetary policy on Thursday.

"It is rare for the Japanese government and the BOJ to move solidly in tandem, so their coordinated action will deliver a strong message to the markets," said Takeo Okuhara, a fund manager for Daiwa SB Investments in Tokyo.

The yen slid broadly, tumbling 2.5 percent against the euro to 113.15 yen and 2 percent versus the Australian dollar to 84.64 yen.

Traders said a variety of market players sold into the dollar/yen rally, including Asian central banks, Japanese exporters and Japanese retail investors.

There was also talk of active selling of the Australian dollar against the yen by Japanese retail margin traders, who had recently increased their combined net long position in dollar/yen and major cross/yen pairs to a record high.

One resistance level for the dollar lies at 79.50 yen, a 61.8 percent retracement of the dollar's drop from an early July peak near 81.50 yen down to this week's four-month low.

"History suggests that the BOJ action will support USD/JPY for a few days at most but won't alter the overall trend. The September 15, 2010 solo intervention was very large scale but USD/JPY started to reverse within a matter of days," said Sean Callow, senior currency strategist for Westpac Institutional Bank in Sydney.

The yen-selling intervention took place for the first time since March 18 when the Bank of Japan and other central banks jointly intervened after the yen surged to the record high versus the greenback after the quake.

The dollar has been under pressure against the yen after a series of weak U.S. indicators raised concerns about the US economy's outlook.

The Swiss National Bank on Wednesday announced a shock cut in interest rates and threatened more action to cap a soaring Swiss franc. The SNB said it would cut its target rate to "as close to zero as possible" from an already rock-bottom 0.25 percent, and said it would very significantly increase the supply of francs to the money market over the next few days.