Spanish and Italian debt back under scrutiny, adding to worries
By Deborah Levine and V. Phani Kumar, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar surged the most since September against Japan’s yen Thursday, rallying after Tokyo authorities intervened and the nation’s central bank stepped up its monetary easing.
The euro also fell further against the dollar in early U.S. trading after European Central Bank chief Jean-Claude Trichet said it would conduct more cash operations to provide liquidity to banks.
Late in Tokyo, the dollar USDJPY +2.75% surged to ¥79.56, gaining more than ¥2.5 from the greenback’s ¥77.04 level before the intervention news broke and up from ¥76.96 late in the prior session.
The U.S. dollar index DXY +1.34% — which measures the greenback’s performance against six other major currencies including the yen — soared to 74.086 from 74.035 late Wednesday.
The action in Tokyo, which came a day after Switzerland acted to push down its own currency, marks the first time Japan has stepped into the market since the aftermath of the devastating March 11 earthquake.
Analysts said the intervention would likely put a floor under major currencies in their trading against the yen, but the Bank of Japan’s objectives and supply-demand still favor yen rallies.
“Japanese authorities are trying to limit the yen strength, not cause an outright weakness — a very important difference,” said Sue Trinh, director and senior currency strategist at RBC Capital Markets. “From that perspective, yen gains are likely to slow.”
Finance Minister Yoshihiko Noda said the government had acted alone to curtail the yen’s rise — unlike in March, when actions were coordinated with the Group of Seven leading economies to keep the yen from appreciating further.
Later Thursday, the Bank of Japan announced that it was adding to its asset purchases — such easing tends to weaken currencies — even as it said that Japan’s “economic activity has been picking up steadily.” The central bank cut short its policy meeting by a day to complement the ministry’s intervention. See report on Bank of Japan actions.
Swiss lead the way
RBC’s Trinh said Switzerland’s bid to tame the franc “probably gave the Japanese authorities a green light” to take its own actions. The Swiss National Bank took various steps, including a cut to its key lending rate to around zero.
Other major currencies also jumped sharply against the Japanese currency after the intervention, with the euro EURJPY +1.69% soaring to ¥112.77 from ¥110.44.
The Australian dollar jumped to ¥84.20 from the day’s ¥82.69 low.
Still, many analysts were skeptical that the actions could keep the yen anchored beyond the short term.
“We don’t believe today’s action will explicitly change the trend of the [dollar-yen rate],” Royal Bank of Scotland economists wrote in a note to clients.
They said that as long as concerns remain about the U.S. economy and for further monetary easing by the Federal Reserve, it would be hard for the dollar-yen pair to return to “high enough levels to alleviate the negative pressure on exporters’ earnings.”
ECB’s Trichet
The euro EURUSD -1.04% fell to $1.4168, down from $1.4225 before Trichet’s press conference and from $1.4318 Wednesday.
Meanwhile, the British pound GBPUSD -0.51% fell to $1.6320 from $1.6422, after the European Central Bank and the Bank of England both left their benchmark interest rates at current levels. Read story on ECB and BOE policy decisions.
Traders also tuned into Trichet’s news conference for any comments on the further path of rates as the European sovereign-debt crisis looks like its sucking in Italy and Spain — two much bigger economies and bond markets. Read ECB preview.
The Swiss franc EURCHF -0.69% extended losses Thursday, with the U.S. dollar fetching 77.55 Swiss centimes, up from 76.86 centimes. One hundred centimes equal one Swiss franc.
Deborah Levine is a MarketWatch reporter, based in New York.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
