Japan sold the yen for the second time in less than three months after it hit another record high against the dollar on Monday, saying it intervened to counter speculative moves that were hurting the economy.
Finance Minister Jun Azumi said Tokyo stepped into the market on its own at 10:25 a.m. local time and would continue to intervene until it was satisfied with the results.
Tokyo's latest foray into currency markets followed weeks of warnings that its patience with the yen's strength was wearing thin, and came just days before the Group of 20 leaders' summit in Cannes, France.
The summit will focus on Europe's efforts to contain its sovereign debt crisis and avoid a repeat of the financial shock that roiled markets after the Lehman Brothers collapse in 2008.
But Tokyo is keen to win G20 understanding that a strong yen is one challenge too many for an economy grappling with a nuclear crisis, a $250 bln rebuilding effort from a March earthquake and tsunami and ballooning public debt.
Japan also argues that the yen is sought by investors worried by the euro zone debt crisis and stuttering U.S. growth and the demand has nothing to do with the fragile health of the Japanese economy.
The dollar vaulted more than 4% past 79 yen, from around 75.65 yen, after Tokyo began selling its currency. The dollar had touched a record low of 75.31 yen earlier on Monday.
Several G20 nations, including South Korea and Indonesia, have been intervening regularly in currency markets, but Japan is under more scrutiny as an issuer of one of three global currencies and does not want to be deemed a currency manipulator.
Following a G20 finance leaders' meeting earlier this month Azumi said the group's statement highlighting adverse effects of excessive currency swings reflected Japan's concerns.
PERSISTENT INTERVENTION
He would not comment on the size of the intervention, but one trader said the authorities were intervening "quite persistently".
"My sense is that they might not quit very easily," a trader said.
The dollar remained nailed near 79.20 yen for more than an hour after the intervention due to a large bid at that level, prompting traders to speculate that Japan might want to set a Swiss-style floor for the dollar/yen.
However, Japanese officials said at the time of the Swiss Central Bank intervention in September to set a floor for the euro that the Japanese economy was too big for such a tactic, and dealers said Tokyo was unlikely to peg the yen to any particular level in the longer run.
If the dollar held around 79.20 — its highest since August 5 — it would be its biggest one-day percentage gain since October 2008, bigger than that following Tokyo's joint intervention with Group of Seven nations in the aftermath of the March 11 disaster.
Even though the yen's exchange rate when measured against a trade-weighted basket of currencies and adjusted for inflation is not far from its 30-year average, its rate against the dollar is much stronger than those assumed by Japanese exporters in their earnings projections.
That has led to a flurry of warnings from leading companies that they might have no choice but to move more production abroad to cope.
Chipmaker Elpida warned it might have to move production abroad and Honda's chief executive said earlier this month that the company would half exports from Japan over the next decade because of the strong yen.
Japan's economy has been recovering from the March 11 disaster that pushed it into its second recession in three years, with companies swiftly restoring production and supply chains.
Policymakers have counted on reconstruction spending and robust demand from emerging markets to sustain the momentum, but the yen's pressure on exporters' earnings and slowing global growth spurred them to act.
Since September 2010, Japan has now intervened three times on its own and once jointly with other G7 rich nations to weaken the yen. But the effects of past intervention have proved fleeting in the face of steady demand from nervous investors seeking highly liquid and relatively safe assets such as Japanese government bonds.
