Group of 7 to Intervene to Stabilize Yen’s Value


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Group of 7 to Intervene to Stabilize Yen’s Value

Haruyoshi Yamaguchi/Bloomberg News

Yoshihiko Noda, Japan’s finance minister, left, and Masaaki Shirakawa, governor of the Bank of Japan, spoke to the media after a conference call with representatives from the Group of Seven.

Markets responded immediately by driving down the value of the yen against the dollar, reversing almost a week of sharp increases. The Nikkei 225, the leading index of the Japanese stock market, also surged on the news.

The rising value of the yen threatened to undermine demand for Japanese exports at the same time that a series of disasters has damaged the domestic economy.

Japanese officials said earlier on Thursday that they could respond unilaterally and wanted only the approval of other nations, but they requested and received additional help during a conference call with finance ministers and central bankers on Thursday night.

In a statement expressing “solidarity with the Japanese people,” the Group of 7 nations said they would conduct a “concerted intervention in exchange markets” on Friday.

“As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” the group said in a joint statement.

It is the first time since 2000 that the Group of 7 nations has made a coordinated intervention into the currency markets, then to stabilize the euro. During the 1990s, the yen and the dollar were also the targets of similar coordinated interventions.

The governments of Japan, the United States, Britain and Canada, and the European Central Bank, will seek to reduce and stabilize the value of the yen by selling their own reserves of the Japanese currency for other currencies as necessary.

Stabilizing exchange rates is intended to curb speculation, which the Japanese government described as a main driver of recent market activity. Weakening the yen will also allow consumers in other countries to buy Japanese goods at lower prices.

“I think there’s a very good argument that it’s in everyone’s interest to stabilize the Japanese financial system, and part of that effort is to stabilize the yen,” said Jens Nordvig, an analyst with Nomura Securities. “Normally it only happens when the currency is completely misaligned, and that condition is not in place here, but I think the extraordinary circumstances have made them go ahead and do it nonetheless.”

The intervention is billed as a one-day event, but Mr. Nordvig said it may serve as a blessing from the other countries for additional unilateral action by Japan.

Investors might have been expected to sell yen as Japan struggles to deal with the impact of an earthquake, a tsunami and a nuclear crisis.

Instead they had flocked to the currency, briefly driving its value relative to the dollar to the highest level on record Thursday, before it receded to close at about 79 yen to the dollar.

In overnight trading, the yen weakened by 3 percent, to 81.3 to the dollar.

Some analysts said the buying was driven by speculation that Japanese insurance companies and other investors would sell foreign assets to cover the cost of rebuilding after the earthquake.

Japanese officials sought to dispel that theory, noting that past disasters such as a 1995 earthquake did not create such an effect.

Japanese investors who have taken advantage of low interest rates to borrow yen cheaply and invest in higher yielding foreign currencies may have responded to the disaster by pulling money out of the markets.

The rise may have been amplified by investors forced to cover bets that the yen would remain weak, analysts said.

The jump in price might not cause concern in normal times, as the yen has remained within a fairly normal range of its historic value.

But the upward movement and accompanying volatility are hitting Japan at a time when it needs fewer problems.

“As Japan faces a period of adversity, it is extremely significant for the G-7 to jointly work toward stability in markets,” the Japanese finance minister, Yoshihiko Noda, told reporters in Tokyo Friday.

The value of the yen has been on the upswing since 2007, a reflection of the relative strength of the Japanese economy as financial crises hit the United States and Europe.

One dollar now buys 34 percent fewer yen than it did four years ago.

The Bank of Japan intervened briefly in September, buying dollars to drive down the value of the yen and drawing a rebuke from European officials for acting alone.

“Unilateral actions are not an appropriate way to deal with global imbalances,” Jean-Claude Juncker, Luxembourg’s prime minister and president of the Euro Group, an organization of European finance ministers, said at the time.

Thursday’s meeting, organized by the French finance minister Christine Lagarde, who holds the rotating chair of the Group of 7, hewed closely to that advice.

It also followed a recent pattern of responses by authorities in the United States and other countries that are calibrated to overwhelm emerging financial problems.

The call, held before markets opened Friday in Tokyo, included officials from Canada, Germany, Italy and the United Kingdom.

The United States was represented by the Treasury secretary, Timothy F. Geithner, and the Federal Reserve chairman, Ben S. Bernanke. Mr. Geithner briefed President Obama on the decision, officials said.

Hiroko Tabuchi contributed from Tokyo. 

A version of this article appeared in print on March 18, 2011, on page B1 of the New York edition.

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