Japan intervenes against yen strength


Turkey, which straddles Asia and Europe, suffered a currency crisis last year that has driven support for its soccer team

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan (CNN) -- Japan's yen strength caused the central Bank of Japan to step in to currency markets again on Monday.

Intervention means the BOJ enters the currency market on behalf of Japan. In Monday's case it bought U.S. dollars.

The yen hit a seven-month high on Friday, when it crested to 120.80 yen to the dollar. After the intervention Monday it traded at 121.86 in mid-afternoon dealings in Asia.

Japan's central bank has repeatedly intervened this year. But Monday's move marks the first action in weeks.

Japan normally acts during the Asian lunchtime, which can catch traders unawares. The movement is rapid, with the yen clicking 150 points against the dollar in five minutes or less.

"For a few minutes, nobody can buy any dollars," one trader with Deutsche Bank told CNN. "But it always goes back up again very rapidly."

"It goes back economically to where it wants to be," the trader added.

Seen as a waste of money

Some traders and economists contend intervention is a waste of money. The Bank of America said the BOJ could not "hold the line" by itself indefinitely


Traders joke Japan would have acted during Brazil's victory in Shizuoka to catch the market

"This is just a temporary stop on the way down," it said.

Market players joked that if the Bank of Japan were serious about the yen, it would have intervened during Friday's World Cup soccer match between Brazil and England.

"That was the big laugh, that was the big chuckle about what would happen," the Deutsche Bank trader told CNN. "But a football match doesn't get in the way. Anyone who is serious about currency trading will have cover."

The dollar and U.S. exports are getting cheaper. Japanese goods and services have become 9.4 more expensive than the end of February, when the yen hit 134.57.

Also weighing on the dollar are questions about the U.S. economy and earnings statements.

A key Japanese official warned markets Monday.

"The moves were excessive," Zembei Mizoguchi, a top official with the finance ministry, told reporters. "We are closely watching the markets to see how they respond."

Currency worries in Brazil

Such steps are called "verbal intervention."


Korea arranged a currency swap with China on Monday, an indirect way of influencing the won

Japan does not declare intervention but seems to have stepped in last on June 4.

Its intervention at Monday lunch-time might have taken the currency markets, which trade 24 hours, by surprise, as many currency and bond traders are European.

On Friday in the Japanese city of Shizuoka, Brazil beat England 2-1 in a World Cup soccer quarter-final, setting up a repeat clash with Turkey (match report).

Brazil, the largest economy in South America, has its own currency worries. The Brazilian real is suffering a sharp blow from the economic problems in Argentina.

Turkey, which beat Senegal, itself experienced a currency crisis last year.

South Korea's won has seen an even-more rapid run against the dollar. It is trading at 1213.2 against the dollar on Monday afternoon.

But the central Bank of Korea has been reticent about intervention. Instead it agreed Monday on a $2 billion currency swap with China.

Again, the joke in currency circuits is the "World Cup" effect. Korea may be content with its performance in the World Cup, where it is the first Asian team to reach the semifinals (full story).

The Korean Red Devils will meet Germany in the other semifinal (Korea rejects Cup conspiracy theory). Turkey straddles Europe and Asia but qualified from Europe.

Separately on the currency front, a Paris-based task force repeated its assessment that seven Asian countries are not cooperating in the fight to stem money laundering (Full Story).