Yen falls after Japan intervenes

The yen has traded in the 125 range Monday and Tuesday

TOKYO, Japan -- The yen slipped from a five-month high against the dollar on Wednesday after the Bank of Japan took action to stop its rise, and the government warned it would continue to intervene to protect the economy's fragile recovery.

The BOJ, acting for the Ministry of Finance, began buying dollars for the first time since September in an effort to weaken the yen after the currency hit a peak of 123.50 to the dollar. The yen was trading around 124.25 at 1330 GMT on Wednesday.

Finance Minister Masajuro Shiokawa said that the government was behind the intervention and would continue to buy dollars to halt the yen's rise.

The intervention followed complaints by Japanese officials that the yen was strengthening too quickly, even though it reflects an improving economic climate in Japan.

"Recent movements of the exchange rate have been too rapid. We have taken appropriate action today in the exchange market," Shiokawa said in a statement.

"We will continue to closely monitor the market and take appropriate action as necessary."

Earlier this week, Prime Minister Junichiro Koizumi said even though Japan's economic recovery has been "better than expected... rapid movements in the foreign exchange markets are not favourable."

A strong yen makes Japanese exports more expensive. The government is concerned this could stall exports, which have been climbing over the past three months. Japan needs to increase exports to help pull itself out of its deepest recession in 50 years.

"They are definitely worried about it," Ron Bevacqua, chief economist at Commerz Securities in Tokyo, told Reuters.

"The export cycle has begun to stimulate domestic economic activity. Employment is improving. Overtime hours are up. Profits are improving, setting the stage for a recovery in capital expenditure as well."

However, analysts do not expect that currency intervention will keep the yen down for long.

"With the economy getting stronger... global investors are being attracted to Japan like a moth to a flame. They might get burnt in the future but, for now at least, the clamour for a piece of Japan is overwhelming," investment bank Bear Stearns said.

"As a result, all the Bank of Japan seems to be doing at the moment is supplying cheaper yen that the market is only too willing to buy."