Japan steps into market to stem yen's rise for 1st time in 6 yrs+

TOKYO, Sept. 15 Kyodo -
The Japanese government and central bank conducted their first currency market
intervention in over six years on Wednesday to curb the yen's rise in a
surprising move that reflected their fears that the country's economic recovery
could slow down.
The yen-selling intervention, implemented several times both in Tokyo and
overseas trading, helped the U.S. dollar rise back above the 85 yen line from
the upper 82 yen level. A Finance Ministry official said the government will
continue to step into the market on Thursday if necessary, while market
participants said the emergency step may have only a limited effect.
The focus is now shifting to whether the Bank of Japan could take additional
easing measures in its monetary policy and help weaken the yen in line with the
government step.
Prime Minister Naoto Kan said Japan's intervention has had some positive
effects in reining in the yen's recent sharp rise against major currencies.
''As we have said before, rapid currency fluctuations are undesirable and we
will take decisive steps when needed,'' Kan told reporters. ''Today the
fluctuations reached a stage where we could not leave them uncontrolled. So we
intervened.''
Another official of the ministry said Japan has ''implemented an intervention
of considerable scale,'' with some market sources estimating the amount of yen
the authorities sold came to around 1 trillion yen.
The intervention was conducted unilaterally, Finance Minister Yoshihiko Noda
said, sparking doubts among market players about its effectiveness.
The move by the Japanese monetary authorities came after Kan was reelected as
president of the Democratic Party of Japan on Tuesday, beating ruling party
heavyweight and sole challenger Ichiro Ozawa.
Fumito Akiyama, fund manager at Sparx Asset Management Co., said the Japanese
government's move will not change the current situation significantly.
''The timing (of the intervention) was interesting to some extent,'' Akiyama
said. As the gap remains between Japan and the United States over their
inflation expectations, however, ''the yen will rise (against the dollar) in
the medium and long term,'' he said, adding it is ''natural'' for the yen to be
bought given that the Japanese economy is experiencing deflation.
He also said it is unlikely the United States will join Tokyo's attempt to
weaken the yen and strengthen the dollar as President Barack Obama has
expressed his intention to accelerate U.S. exports.
The U.S. Treasury Department refrained from commenting on Japan's intervention.
Washington is normally seen as negative about artificial moves in financial
markets.
Noda said Japan stepped into the currency market while closely communicating
with authorities in other major economies, but declined to reveal their
reactions.
Japan last intervened in the foreign exchange market on March 16, 2004. Tokyo
used more than 35 trillion yen in the 15 months through the same month to avert
the yen's sharp advance against the dollar.
A stronger yen hurts the country's export-led economy because it cuts
exporters' overseas revenues when they are converted back into the Japanese
currency.
Japan's currency policy is controlled by the Finance Ministry with the BOJ
acting as its agent.
Amid the growing speculation that the BOJ would further ease its monetary
policy, the central bank is set to accelerate the effects of the government's
intervention by not absorbing excess liquidity caused by the act from money
markets under its daily operations, sources close to the matter said.
The BOJ normally drains yen liquidity after currency interventions and controls
money supply in the economy.
But without such a move, called ''sterilization,'' the BOJ could effectively
ease monetary conditions, causing similar impacts to those of ''quantitative
easing'' -- injecting liquidity into the economy through purchases of
government bonds and other assets -- without bloating its balance sheet, or
being exposed to risks.
Possible options the BOJ may take also include, as pressed for by some
lawmakers, the expansion of its outright purchase of long-term government bonds
from the current 1.8 trillion yen per month, although the bank earlier showed
reluctance to take the option due to fears it could lead to a surge in
long-term interest rates.
The BOJ is to hold its next policy meeting on Oct. 4 and 5.
''There has been growing uncertainty, especially about the U.S. economy, and
the foreign exchange and stock markets have been unstable,'' BOJ Governor
Masaaki Shirakawa said in a written statement released after the intervention.
''In these circumstances, the downside risks to Japan's economy warrant
attention.''
The government is expected to publicize detailed information concerning the
intervention, including the exact numbers about the yen-selling, later this
month.
==Kyodo