A wave of coordinated intervention by the world’s financial powers sent the yen plunging Friday after the Group of Seven agreed to take steps to curb the Japanese currency’s post-earthquake surge.
The U.S. dollar traded at 81.41 yen at 7 a.m. Eastern time, compared to ¥79.14 shortly before the G-7 announcement in early Asian trading hours.
Most of the dollar’s jump came in the wake of the announcement in Asia, with the Bank of Japan seen stepping in aggressively to sell the yen versus the dollar. European central banks also joined in.
In a statement, the British Treasury said that, at its instruction, the Bank of England intervened in the foreign currency markets "to give effect to the G-7 finance ministers’ communique."
A spokeswoman for the German Bundesbank confirmed that the institution was also participating in the intervention. Traders said action was also seen by the Bank of France and the European Central Bank. Spokespersons for the Bank of France and ECB didn’t immediately respond to requests for comment.
The yen was sharply lower versus all major rivals on Friday.
The euro traded at 114.74, up from ¥110.93, while the British pound climbed to ¥131.17 from ¥127.69.
The dollar index , which measures the greenback against a basket of six currencies, traded at 75.891, compared to 75.992 in late North American trading on Thursday.
The euro rose to $1.4125 from $1.4020 in late North American trade Thursday. The British pound was at $1.6149 compared to $1.6144 late Thursday.
The yen hit a record high against the dollar early Thursday in Asia, raising speculation of intervention as Japan struggles to cope with the aftermath of last week’s massive earthquake and tsunami.
The Japanese government has described the events, along with troubles at a nuclear power plant, as the worst crisis for the country since World War II.
The G-7 said Friday that "in response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the United Kingdom, Canada, and the European Central Bank will join with Japan, on March 18, in concerted intervention in exchange markets."
The yen’s surge was seen as particularly unwelcome as the nation is expected to rely on its export sector to help dig out of the economic hole left by the earthquake, tsunami and the still unresolved nuclear crisis.
Traders have tied the yen’s surge to a number of factors, including expectations of large-scale repatriation of overseas investments, the unwinding of yen-funded carry trades and the Japanese currency’s traditional status as a safe haven during turmoil and uncertainty.
Further intervention is likely over the course of the day, with the Federal Reserve and the Bank of Canada expected to join in selling the yen as North American trading activity gets underway.
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