Yen rise curbed after G-7 pledges to support Japan

[March 18, 2011]  TOKYO (AP) -- The yen backed away from historic highs and Japanese shares rose Friday after the Group of Seven major industrialized nations promised coordinated intervention in currency markets to support Japan's recovery from a catastrophic earthquake and tsunami.

The G-7 pledge came a day after the yen soared to an all-time high against the dollar, possibly threatening Japan's exports and hampering its economic recovery from the Mar. 11 quake that triggered an unfolding nuclear crisis.

The dollar jumped to 81.26 yen from 79.45 immediately after the announcement and was trading at 81.66 mid-afternoon. It was unclear whether that was due to government intervention or to traders reacting to the news. The dollar briefly slumped to 76.53 yen on Thursday -- an all-time low for the U.S currency and a record high for the yen.

The benchmark Nikkei 225 stock average closed up 2.7 percent Friday following a turbulent week of trading amid the escalating nuclear crisis. The index is down nearly 12 percent since March 10, the day before the quake.

The G-7 statement sent a "strong message" to reassure jittery markets, said Masafumi Yamamoto, chief foreign exchange strategist at Barclays Capital Japan. It would be the first time since late 2000 that the governments have jointly intervened in currency markets.

Japan's Finance Minister Yoshihiko Noda said the planned intervention was meant to calm "volatility" and G-7 governments had no target exchange rate.

"We are not aiming for a specific level," the minister told reporters.

The G-7 statement adds to a flurry of moves by Japan to calm roiled financial markets following the 9.0-magnitude quake and tsunami in northeastern Japan, which killed has thousands of people, left hundreds of thousands homeless and damaged reactors at a nuclear power plant.

Japan's central bank welcomed the G-7 initiative. The bank has tried to calm money markets by injected 38 trillion yen ($470 billion) in emergency cash this week on top its regular funding activities.

At the crippled Fukushima Dai-ichi nuclear power plant, military fire trucks sprayed the troubled reactors for a second day Friday, with tons of water arcing over the facility in desperate attempts to prevent fuel from overheating and spewing dangerous levels of radiation. The U.N. atomic energy chief called the disaster a race against the clock that demands global cooperation.

Quake damage and power cuts have forced Toyota Motor Corp., the world's biggest automaker, and other major manufacturers to suspend production, sending ripples through the global economy.

Analysts expect automakers to recover in coming weeks though most were still working on lining up alternative parts suppliers Friday to replace those damaged in Japan's northeast. Nissan Motor Co. and Mitsubishi Motors Corp. restarted some facilities this week using parts already in stock but that will continue only as long as inventory lasts.

"It's all guesswork," Koji Endo, analyst with Advanced Research Japan, said of the potential damage.

Japan's Mizuho Bank said technical trouble that has hit its automatic teller machines is expected to have affected more than 1 million transactions worth 700 billion yen ($8.9 billion) by the end of Friday. The bank, Japan's third biggest, is investigating but has yet to find a cause, said spokeswoman Masako Shiono.

In a joint statement issued following emergency discussions, the G-7 officials said that the United States, Britain, Canada and the European Central Bank will join with Japan in a "concerted intervention" in currency markets Friday.

"We express our solidarity with the Japanese people in these difficult times," the statement said.

Noda, the finance minister, expressed Japan's gratitude.

The yen's rise was driven by expectations that Japanese companies would sell dollar-denominated assets and buy yen to pay for quake recovery. Traders said there was no sign that happened, which meant government intervention might be able to discourage further speculation.

Barclays Capital's Yamamoto said the G-7 pledge of cooperation was a striking contrast to last year's talk of possible "currency wars" and governments trying to weaken their currencies to shore up exports amid the global crisis.

"It's completely different from last year," he said. "People were talking about currency wars and competitive devaluation. So it's a total change. In that sense, it was very significant that speculative yen appreciation can be attacked by coordinated action."

Goldman Sachs estimated Japan's disaster losses could reach $200 billion, the equivalent of more than 3 percent of Japan's annual gross domestic product.

It is unclear how much a change in exchange rates might help Japanese exporters, which also are struggling with power shortages that have forced major auto manufacturers and others to suspend production.

"Many would currently be unable to benefit from a weaker yen anyway," Capital Economics said in a report. "A stronger currency will at least make imports cheaper and therefore minimize the additional costs of meeting any shortfall in necessities following the disruption to domestic supplies."

[Associated Press; By JOE McDONALD]

Associated Press writer Tomoko A. Hosaka and AP Business Writers Yuri Kageyama and Kelly Olsen contributed.

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