For the first time in 6 years the Japanese Government entered the foreign exchange market Wednesday to attempt to stop the Yen from trending ever higher against the U.S. dollar.
Japanese Prime Minister Naoto Kan who was just re-elected as president of the Democratic Party of Japan on Tuesday told reporters “As we have said before, rapid currency fluctuations are undesirable and we will take decisive steps when needed. Today the fluctuations reached a stage where we could not leave them uncontrolled. So we intervened.”
The surprise move by the Japanese government and central bank had the immediate effect of lowering the Yen-U.S. dollar exchange from the upper Y82 Yen level to just above the Y85 line.
Observers said they are not sure if this move will curb the rising Yen trend against all major currencies but Japanese finance officials served notice they will intervene again Thursday if necessary.
It was estimated that Japan sold about a trillion Yen to drive down its price but there was no co-ordination with other central banks. It is unlikely that the Japanese move will significantly alter the trend of a rising Yen because of the deflation in Japan and the demand for Yen.
The last time Japan intervened in the currency exchange market was 2004 and they spent Y35 trillion over a 15 month period to try and stop the rising Yen.