G7 Action Drives Yen Lower for Now; Nikkei Rebounds 2.7%

Nigel Thomas
18 Mar, 2011
New York City

Stocks in Japan rebounded after G7 nations initiated round-the-clock intervention in currency market. The yen declined 3.6% by the end of trading and more selling is expected in Europe and in New York later in the day. G7 agreed for a coordinated move, the first such action since 2000.

[R]5:00 PM Tokyo – Stocks in Japan rebounded after Japan in coordination with wealthy nations initiated round-the-clock intervention in currency market. The yen declined 3.6% by the end of trading and more selling is expected in Europe and in New York later in the day. G7 agreed for a coordinated move, the first such action since 2000.[/R]

Stocks in Japan closed higher after G7 nations central bankers pledged to work together to lower the yen.

Japan’s finance minister Yoshihiko Noda announced the agreement in a press gathering at the finance ministry after a 90-minute teleconference with G7 members.

He added that G7 central bankers agreed to carry out a coordinate move, the first since 2000 to prevent “excess volatility and disorderly movement” in the yen.

The stability of the yen is extremely important for Japan and for the global economic recovery as many Japanese companies rely on exports and lower yen is crucial for these businesses and the recovery Japan.

Minister Noda also confirmed that he is not targeting any specific level for the yen and said that the ministry began selling the yen through the Bank of Japan today and will central banks in Europe and the U.S. will sell more yen as the trading shifts later in the day.

The yen temporarily dropped from 79.19 yen to a dollar before the announcement to 81.49 yen after two hours of intervention carried out by the Bank of Japan.

The move is expected to help the currency and fight speculators are driving the yen higher in anticipation of large repatriation as happened after the Kobe earthquake in 1995.

Finance minister Noda said that he explained to central bankers that Japanese companies do not need to sell foreign assets and bring the capital back home and speculators are driving the yen higher rather than the need of the corporate Japan.

The Nikkei 225 Stock Average increased 2.7% to 9.206.75 and the broader Topix index increased 2.4% to 830.39. For the week the Nikkei index fell 10% and the Topix declined 9.3%.

The yen fell 3.6% to close at 81.87 to a dollar after the ministry of finance carried out the sale of at least 1 trillion yen or more than $12 billion in a coordinated move with the G7 nations.

The yen closed at 115.27 against the euro.

The yield on the 10-year Japanese government bond was up one basis point to 1.21%.

Stock Movers

The coordinated move to weaken the yen and the commitment to lower the currency from wealthy nations had a temporary impact on the yen. The lower yen lifted automakers and exporters.

Pioneer Corp increased 9.8% to 370 yen, Daikin Industries gained 8.7% to 2,397 yen and Sony Corp added 0.2%.

Energy stocks closed higher after futures of crude oil increased 3%. Inpex Corp added 6.8% to 580,000 yen and Japan Petroleum Exploration Co added 7.4% to 3,825 yen.

Stocks of nuclear technology makers and steelworks providers increased as soldiers and firefighters battle to cool down reactors at Fukushima Daiichi nuclear power plant.

Tokyo Electric Power jumped 19% or daily limit of 150 yen to 948 yen, still 55% lower from the end of last week.

JFE Holdings Inc increased 3.6%, Toshiba Corp gained 7.5% to 360 yen and Japan Steel Works Ltd soared 11% to 594 yen.

Banks closed higher in today’s rally. Mitsubishi UFJ Financial Group increased 3% to 374 yen and Mizuho Financial Group Inc increased 2.8% to 139 yen.