Yen falls on speculation of central bank selling

Markets view sharp drop against dollar as evidence that government has intervened after currency hits five-year high.

The Japanese government declined to comment today on speculation that it had again intervened in currency markets to weaken the yen after the currency fell sharply against the US dollar in Tokyo trading.

The yen tumbled to 85.38 to the dollar, more than one yen off an intraday high of 84.34, before strengthening to 84.82. The unit also weakened to 113.75 against the euro from 112.30 earlier. The Nikkei business daily, Jiji press and Kyodo news initially quoted traders as saying the government appeared to have conducted a yen-selling intervention.

But other reports said the currency move may have been the result of big yen-selling orders by banks. Finance minister Yoshihiko Noda said in answer to a question from a reporter at the finance ministry: "I have no comment." Japan stepped into the currency markets on September 15 for the first time since 2004 in a bid to stem a strong yen after it hit a fresh 15-year high of 82.86 against the dollar.

A strong yen puts Japanese exporters at a disadvantage because it erodes their repatriated earnings and competitiveness, in turn threatening the nation's fragile growth. Minoru Shioiri, chief manager of FX trading at Mitsubishi UFJ Morgan Stanley Securities, commenting on today's movement, said: "The price action is very specific and strange" though no intervention has been seen directly. But one trader at major Japanese bank said: "I think this is just the market over-reacting to some large-scale buying in dollar-yen by non-Japanese players," adding that the yen would probably strengthen again.

Tokyo has repeatedly said it will act again in currency markets if necessary. But any repeated foray into the markets if the yen resumes upward moves may provoke ire from Japan's Group of Seven partners, after its intervention was criticised last week by politicians in Washington and Brussels. With a large trade and current account surplus, Japan has a relatively weak case to lower its currency to boost exports, some analysts argue.

While the yen recently hit 15-year highs on nominal terms, it is still below its 1995 peak when adjusted for price changes and compared with a basket of currencies used by Japan's largest trading partners, analysts say. The dollar has been under selling pressure on renewed worries that the US Federal Reserve might conduct further easing measures in the light of disappointing American economic data.

* AFP