After a break to nearly 76.00 on Thursday, the USD JPY rallied overnight after the Group of Seven nations agreed to take steps to curb the Japanese currency’s rapid rise. The wave of coordinated intervention by the global financial powerhouse also known as the G-7 is an attempt to stabilize the Yen and bring it back to more respectable levels following the post-earthquake rally.
The rally apparently started with the Bank of Japan selling the Yen followed by the European Central Bank. Later it was learned that the Bank of England also participated in the invention after it released a statement saying it intervened “to give effect to the G-7 finance ministers’ communiqué.” U.S. and Canadian central banks are expected to participate in the intervention when the North American markets open later today. This should put additional pressure on the currency.
Earlier in the week, the BoJ had flooded the market with liquidity, but repatriation following massive global equity market liquidation sent the Yen sharply higher. It is being reported that the BoJ requested the intervention out of fear the currency would appreciate so much that it would curtail its export business which is necessary in order to get the economy back on track following the earthquake, tsunami and nuclear meltdown issues. The central bank is taking the pre-emptive step because it believes that a wave of repatriation especially from carry-trade reversals will continue to push the Yen to historical levels.