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Japan acts to stem yen's rise
TOKYO, Japan (Reuters) -- Japan sought to stem a rise in the yen by apparently intervening in the currency market on Thursday, days after a visit by U.S. Treasury Secretary John Snow, who has argued in general this week for less state interference in foreign exchange. A view had spread that the Japanese authorities would be hesitant to sell the yen, especially after the White House reiterated this week that currency rates were best set by markets and that intervention should be kept to a minimum. "The impact of their action is extremely strong,'' said Hideo Kumano, a senior economist at Dai-ichi Life Research Institute. "It revealed determination to protect the 115 yen level.'' The Japanese authorities have spent a record amount this year in the foreign exchange market in an attempt to hold down the yen, worried that its rise would choke off demand for exports and thus stifle a fragile economic recovery. In particular, traders said, they have defended the 115 yen level, where they have managed to hold the line for over two years. Japan was also seen intervening heavily on May 19, when the dollar fell to a two-year low of 115.10 yen. Traders said a fall below that level could trigger further options-related selling and push the dollar down quickly to around 110 yen. Some analysts think yen-demand from foreign investors will remain strong as long as Tokyo share prices continue to rise and that could help push the dollar below 115 yen in the end. "The yen has been rising because of real fund flows,'' said Kota Kimura, assistant currency manager at Shinkin Central Bank. "So to counter that flow, you will need considerable power.'' Currency traders said the Bank of Japan, acting on behalf of the Ministry of Finance, initially stepped into the market when the dollar fell to a three-and-a-half month low around 115.75 yen and was seen repeatedly buying the dollar above 116 yen. The dollar rose more than one yen to around 116.90 yen before settling around 116.85 yen The Finance Ministry, following its recent practice, did not immediately confirm it had intervened through the BOJ. "The fact that the intervention pushed up the dollar by one yen will scare many players from buying (the yen),'' said Mitsuo Imaizumi, deputy general manager of the international bond and forex department at Daiwa Securities SMBC. ECONOMY RECOVERINGThe yen has risen in recent weeks on expectations that the Japanese economy may finally be recovering from a 10-year downturn, pushing up the Tokyo stock market, where the key Nikkei average hit a 14-month high on Wednesday. Capital flows data released by the ministry on Thursday showed overseas investors continuing to pour funds into Japanese stocks, buying a net 326 billion yen ($2.8 billion) last week. Hidenao Miyajima, an independent analyst, estimated that about $50-60 billion of Japanese shares would be bought if overseas investors raised their weighting position to neutral. Japan's top financial diplomat, Zembei Mizoguchi, said earlier that short-term fluctuations and overshooting of foreign exchange rates were undesirable. Mizoguchi, the vice finance minister for international affairs, told reporters in Phuket, Thailand, where he is attending a meeting of the Asia-Pacific Economic Cooperation (APEC) forum, that the authorities were closely monitoring the market. Tokyo spent a record nine trillion yen ($78 billion) in intervention in the first seven months of this year to keep the yen from strengthening too much. But the MOF surprised the market by disclosing last week that it had conducted no intervention in August. Traders suspected this was to prevent criticism from Snow ahead of his trip to Japan this week. Although officials repeatedly said Snow made no specific comment about the yen, speculation has grown that he pressed Finance Minister Masajuro Shiokawa to curb Japanese intervention when they met on Monday. "I think because the United States did not make a strong argument for the yuan's revaluation, as requested by Japan, Tokyo authorities went ahead and intervened heavily,'' said Dai-ichi Life's Kumano. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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