The Japanese authorities intervened yesterday to support the dollar for the first time since 1995 in an apparent reversal of recent exchange rate policy.
The unilateral intervention forced the yen down against the US currency by 4 yen to Y112.33 (#86 cents) in Tokyo trading. It followed vociferous complaints from Japanese industrialists about the damage the sharp appreciation was causing exporters, and signs of unease inside the government.
Traders reported that the Bank of Japan had bought around $1 billion (#870 million)during the day from a range of Tokyo-based banks, although others later estimated the intervention at between $2 billion-$3 billion.
That was small compared with the $20 billion the Bank spent purchasing yen last spring to boost the Japanese currency. However, traders said that in a thin market the currency was more sensitive to signals or rumours of intervention.
Mr Derek Halpenny, currency economist at the Bank of Tokyo-Mitsubishi in London, said the breach of the Y110 level had apparently been the spur to intervention.
"There was a fear that the yen would have gone on and approached the Y100 level against the dollar unless some action was taken," he said.
Analysts said the Bank of Japan seemed content with the yen in the Y110-120 range. Last week Mr Eisuke Sakakibara, Japan's vice-finance minister, appeared to endorse a stronger yen with comments that prompted the Japanese currency to jump to Y108 against the dollar on Monday, its highest level for 28 months.
His stance and the yen's recent rise caused dismay among senior officials in the Bank of Japan who have argued during the last year that the Japanese economy needed a weaker yen to boost growth.
(# signifies the euro)
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