Japan's Yen Intervention Sends Dollar Surging

Japan’s unilateral steps to weaken the yen Thursday sent the dollar surging to near 80 yen. At 5 p.m. the dollar was trading at 79.88-90 yen, up from 77.14-15 yen at 10 a.m. before the central bank began selling yen in coordination with the Finance Ministry.

Japan’s intervention, the first since March, sent the euro up to 113.91-95 yen at 5 p.m. from the upper-110 yen level just before the intervention.

The intervention was expected to stop the yen from continuing its surge, but investors were surprised because it occurred a day earlier than expected because the BOJ shortened its scheduled two-day policy board meeting to one day.

Analysts doubt the intervention will be able to keep the dollar up against the yen for very long due to fears that the U.S. sovereign debt rating will be downgraded and its economy will become sluggish. All eyes will be on the jobs data to be released Friday. If it indicates economic slowing, the Federal Reserve could implement additional easing measures which would tend to drive down the dollar again.

The yen has been hovering at near record levels against the dollar, hurting Japanese competitiveness and the profitability of exporters when they repatriate overseas profits and must convert them back into a high yen.

Thursday’s intervention is the first since March 18, when Japan had joined with other G-7 nations to push down the yen after it hit a postwar high of 76.25 against the dollar. Japan is acting alone in the current intervention, Finance Minister Yoshihiko Noda told reporters.

To help the yen-devaluation effots the BOJ loosen its monetary policy, expanding its asset purchase program from 40 trillion yen to 50 trillion yen. The central bank also decided to keep its key interest rate at around zero to 0.1 percent.