Strong yen prompts Government action

TOKYO - Japan intervened in the foreign-exchange market yesterday for the first time since 2004, after a surge in the yen to the strongest against the dollar in 15 years threatened to stunt the nation's economic recovery.

Finance Minister Yoshihiko Noda confirmed the intervention. Noda said that Japan had contacted other nations about the step, without specifically saying the measure was taken unilaterally.

The move comes a day after Prime Minister Naoto Kan won re-election as the head of Japan's ruling party, beating a candidate who had specifically called for intervention to help shelter the nation's exporters from currency appreciation.

Exports have been the main driver of Japan's economic recovery and the yen's jump prompted business leaders to call for stronger steps from the Government to stem the gains.

"Politically, it's more stable than before the party election and that may make it easier" to conduct intervention, Tohru Sasaki, head of Japan rates and foreign-exchange research in Tokyo at JPMorgan Chase, said before the announcement.

The yen tumbled 1 per cent to 83.97 to the US dollar.

Until now, the Government has pressed the Bank of Japan to step up liquidity injections to help address the gains in the yen.

The central bank last month increased a credit programme by 10 trillion after an emergency meeting. The step had little impact on the currency.

"I don't see any other measure to address deflation and a slowing economy," Masafumi Yamamoto, chief currency strategist at Barclays Bank in Tokyo, said.

Top business executives have been calling for Government action to stem the yen's rise.

"We want verbal or actual intervention if the yen appreciates more than the current level," Hiromasa Yonekura, head of Japan's Keidanren business lobby, said on September 13.

Some analysts have said that official action by Japan might not weaken the yen for long unless it's conducted together with overseas authorities. Kan said last week that getting international co-operation to halt the yen's rise is "difficult".

US Treasury Secretary Timothy Geithner declined to comment about the prospects for currency intervention in an interview last week, instead saying that Japanese officials should do what they can to help their economy grow.

"They're working through some difficult problems," Geithner said.

"My view is they should be focusing like we are on how to make sure they're reinforcing recovery in Japan and doing things that are going to help."

Recent Japanese data have pointed to the expansion losing momentum. The Government yesterday revised its July industrial output figures to show that output fell rather than increased from a month earlier.

- BLOOMBERG