The yen dropped by the most in three years against the dollar as Japan stepped into foreign-exchange markets to weaken the currency for the third time this year after its gains to a postwar record threatened exporters.
“I’ve repeatedly said that we’ll take bold action against speculative moves in the market,” Japanese Finance Minister Jun Azumi said to reporters today in Tokyo after the government acted unilaterally. “I’ll continue to intervene until I am satisfied.”
The yen weakened against the more than 150 currencies that Bloomberg tracks as Azumi said that he ordered the intervention at 10:25 a.m. local time because “speculative moves” in the currency failed to reflect Japan’s economic fundamentals. Today’s drop reversed this month’s previous gain by the yen against the greenback, which came amid speculation the Federal Reserve may add to stimulus measures as the U.S. economic recovery stagnates.
The yen sank 4.3 percent to 79.20 per dollar as of 12:59 p.m. in Tokyo, poised for its biggest closing drop since October 2008. It earlier fell as low as 79.50 per dollar, the weakest since Aug. 4. The yen slid 3.3 percent to 110.99 per euro and weakened 2.7 percent to 83.39 per Australian dollar. The euro fell 0.9 percent to $1.4015.
Japan’s currency climbed to a postwar record of 75.35 per dollar earlier today, two months after the nation conducted its biggest intervention in seven years. The government this month downgraded its economic assessment for the first time since April, citing the impact of the strong yen and weakening consumer spending.
‘Short-Term Bounce’
“Japan cannot afford to have such a strong yen,” said Thomas Harr, head of Asian currency strategy at Standard Chartered in Singapore. “You will see a short-term bounce in dollar-yen.”
Finance Minister Azumi acted after the Bank of Japan last week expanded stimulus programs to a total of 55 trillion yen ($694 billion) from 50 trillion yen as Europe’s sovereign-debt crisis spurred the yen to a 7.5 percent gain versus the dollar in the six months to the end of last week.
Japan sold 4.51 trillion yen in August, a statement from the Ministry of Finance showed, the largest monthly amount since March 2004.
Swiss Ceiling
The yen and the Swiss franc each climbed to records this year as investors sought havens from fiscal crises in the U.S. and Europe.
Switzerland’s currency has weakened since Sept. 6 when the Swiss National Bank imposed a ceiling of 1.20 francs per euro and resumed purchases of foreign exchange.
Both currencies tend to strengthen during economic and financial turmoil because current-account surpluses in the nations makes them less reliant on foreign capital. A stronger domestic currency hurts the overseas competitiveness of exporters and cuts the value of their overseas income when repatriated.
Japan’s intervention in the foreign-exchange market may have amounted to more than $1 billion so far today, said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency margin company. “They’re likely to continue intervening to sell yen, at least for today,” he said.
Quake Impact
An earlier yen record of 79.75 reached April 1995 had stood for 15 years until March this year when a record earthquake struck Japan’s northeast, stoking speculation companies would repatriate overseas assets to pay for rebuilding. The currency jumped to 76.25 on March 17, prompting coordinated intervention by Group of Seven nations the next day.
Japan’s sale of its currency in August was unilateral, as was a 2.12 trillion yen operation in September 2010 that was the country’s first since 2004. Azumi said last week that conducting coordinated intervention in the currency market is a “difficult thing.”
“Near-term you’ve obviously got to be wary; you wouldn’t want to be buying yen here,” said Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB. “I think at least for the next few weeks, the Japanese might have just created better levels to be buying yen or for exporters to effectively do the same.”
Fed Policy
The dollar is set for its first monthly decline against the euro since June on speculation weakening economic data may spur another round of monetary easing from the Federal Reserve.
The Institute for Supply Management-Chicago Inc. will say today its business barometer fell to 59 this month from 60.4 in September, according to the median estimate of economists surveyed by Bloomberg News. A level of 50 is the dividing line between expansion and contraction.
Fed Vice Chairman Janet Yellen said on Oct. 21 that a new round of large-scale asset purchases, or quantitative easing, “might become appropriate if evolving economic conditions called for significantly greater monetary accommodation.” The Fed’s next policy meeting is on Nov. 2.
“Data in the U.S. is pretty benign,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “There’s no possibility the Fed is anywhere near raising rates. If anything, the rhetoric over the last week or two has been increasingly towards preparedness to do more quantitative easing, should that be required.”