The G7 intervenedto weaken the Yen last Friday in an attempt to stabilize the Japanese currency’s dramatic rise since the catastrophic earthquake, tsunami, and nuclear disaster. Europe’s central banks, the Federal Reserve and the Bank of Canada followed the Bank of Japan’s Yen sales, pushing it down against the US dollar.
The coordinated action is a welcome move for Japan given the need at this stage to help Japan recover from the last 10 horrible days. Authorities fear that a rapidly rising yen will have an adverse impact on the export-oriented Japanese economy as it copes with its crisis; a legitimate concern to be sure.
The move by the central banks to sell Yen in order to weaken the Japanese currency in the foreign exchange market aims to boost liquidity and support Japan's export trade. Cheaper currency on a relative basis makes goods more affordable to foreign purchasers and tends to drive sales higher.
Coordinated G7 action, coupled with the BOJ's proactive efforts, sends a strong message to the market that there are powerful forces behind a weaker directional move in the Yen; short-term players and speculators betting for a higher yen — beware. Coordinated action is good news for companies like Nissan and Sony that do well when Yen exchange rates are weaker.