The euro rose to a two-month high against the Swiss franc and the dollar also firmed against the franc on Friday, after the Swiss National Bank said it was intervening in the face of a growing risk of deflation. The Swiss central bank cut rates on Thursday and said it was implementing a decision to buy foreign currencies, driving the euro up more than 3 percent and the dollar up more than 2.5 percent against the franc. Traders said the central bank then sold francs, making it the first major central bank in the global economic crisis to use buying foreign currencies as a way to fight deflation and raising the question whether other major economies, notably Japan, would follow suit. However, Masahiro Sato, joint general manager of the treasury division at Mizuho Trust & Banking Co., said that while smaller economies may feel pressure to weaken their currencies the same would not apply to Japan, the world's second-largest economy and a major global exporter. "Competitive currency devaluation is not likely in Japan now because the risks of sparking trade friction are too great. The Swiss can get away with this because of the relatively small size of their economy and the limited role they play in the global economy," Sato said. "A weaker currency is not necessarily a cure-all, because it can fuel capital flight. Japan certainly doesn't want to take on that risk. Japan's homework (task) from the G7 is fiscal stimulus, so it should focus on that." Japanese authorities have not intervened in the foreign exchange market since March 2004 after a 15-month, 35 trillion yen ($359 billion) selling spree aimed at preventing a strong yen from snuffing out an economic recovery. Toru Umemoto, chief FX strategist Japan at Barclays Capital, said Japan had at that time faced difficulties when other economies were in a much healthier state. "Currently almost all countries are suffering from the financial crisis and the global recession ... If Japan intervened in the market currently it would be severely criticized," he said. Satoshi Okagawa, head of FX forward trading at Sumitomo Mitsui Banking Corp, said after the SNB it remained to be seen whether other central banks would take unconventional steps with interest rates close to zero. "The next focus will be whether the Federal Reserve will start buying longer-term Treasuries, and any messages from the Bank of Japan about its balance sheet in the future," he said. G7 AND G20 Last October G7 finance ministers effectively gave Japan the green light to intervene to weaken the yen, which was soaring at the time, but Tokyo chose not to act. Group of 20 financial leaders meet in England this weekend to discuss how to fight the global economic crisis. Umemoto said they were likely to stress the need for international cooperation and avoidance of protectionist measures.

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