Fed and ECB intervene for BOJ to weaken yen

Fed and ECB intervene for BOJ to weaken yen

Andrea Ricci, Reuters, Tokyo/New York

Japan enlisted the European Central Bank and the U.S. Federal
Reserve to help sell yen on Friday, raising the specter that
unease may be growing in the world's three top economies over
volatile currencies.

Japan has been eager to dampen the export-damaging strength of
its currency, and the Bank of Japan has already intervened to
sell yen for dollars at least six times since May 22.

But the yen has continued to gain against the greenback,
hitting a nine-month high early on Friday before central banks
jumped in unexpectedly.

"We are intervening in the market," Japan's top financial
diplomat Haruhiko Kuroda told Reuters. "The ECB and Fed are
operating on behalf of the BOJ as well."

The dollar immediately surged more than one yen to above
120.30 yen in the New York morning from 118.90 shortly before the
action. By late afternoon, it was trading at 119.53. The euro
jumped from around 118 yen to around 118.80 and eased to 118.49.

Kuroda added: "We will continue to monitor currency markets
carefully and take appropriate action as needed."

An ECB spokesman confirmed it was intervening on behalf of
Japanese authorities, buying euros against the yen. In London,
the Bank of England decline to comment on whether it had taken
part in the action, as did the U.S. Treasury and New York Fed.

The Swiss National Bank said it had not been involved.

Japan last acted to cap yen strength in September 2001, which
proved relatively successful as it coincided with a broad-based
rally in the dollar.

But this year the currency has soared more than 9 percent
against the dollar, largely due to global investors'
disenchantment with sinking U.S. asset prices rather than a
desire to own yen.

Friday's action marked the first time the Fed and the ECB had
sold yen for the BOJ during the latest bout of intervention. In
previous instances, the BOJ acted on its own.

Analysts were divided on whether the joint action signaled
that policymakers were worried about the pace of the yen's rise,
and by extension, the dollar's fall.

"It seems likely a timely reminder that the dollar's fall had
begun jeopardizing the world's recovery," said Marc Chandler,
currency strategist at HSBC in New York.

A falling dollar can weigh on U.S. stocks and bonds by
curtailing foreigners appetite for dollar-denominated assets,
which in turn makes it more difficult to finance the nation's
current account gap as capital inflows moderate.

A weaker dollar can also be inflationary.

These are problems for the United States. But they can also
cause troubles for other countries if U.S. growth slows,
lessening American demand for foreign goods and hence dampening
growth globally.

U.S. leaders repeatedly have indicated they support a strong
dollar but have said markets should set rates and have taken no
steps to stop the dollar's slide. Indeed Treasury Secretary Paul
O'Neill has shown a distinct distaste for meddling in foreign
exchange markets.

And some dealers suspect that President George W. Bush might
tolerate some dollar weakness to help U.S. exporters. The dollar
has risen more than 30 percent on a trade-weighted basis since
mid-1995 before starting to slip this year.

S&P MMS Senior Currency Analyst Ron Simpson was one market
watcher who said the three-way intervention on Friday was not
meant to send any signals to the market.

"I don't think the market is going to get any impression that
the Fed wants the dollar higher," he said.

Indeed, he said, it would be typical for the Fed to act on
behalf of the BOJ or any other central bank during U.S. hours.
What was atypical was the BOJ's move last month to sell yen for
dollars through Tokyo banks' overnight foreign exchange desks
during U.S. trading hours.

It would be far different if the U.S. and Europe had sold
their own yen reserves. Such a concerted intervention would be
taken as a powerful signal that the major economic powers were
distressed by the action in currency markets.

But Mike Malpede, senior foreign exchange analyst at Refco
Group, said the Group of Three heavyweights may have wanted to
intervene without the fanfare of a concerted action.

"They may be trying to avoid the appearance of that in case it
failed," he said.

'I think they are making an effort to signal to the market
that there are concerns from the G8 about the dollar's fall,"
Malpede added. Leaders of the Group of Eight industrialized
countries held a summit in Canada this week.

Regardless of what type of signal the G3 was trying to send on
Friday, analysts said the BOJ would keep up the pressure.

"The Japanese authorities have again displayed their
determination to resist a yen appreciation," said Steven Pearson,
chief currency strategist at Halifax Bank of Scotland Treasury
Services in London. "We expect more to follow should rates slip
back."