The yen rallied to a new all-time high against the dollar as traders speculated G-7 central bankers may be getting ready to intervene to drive the currency lower.
Japanese Finance Minister Yoshihiko Noda said early Thursday that he is closely watching foreign exchange markets, but he declined to comment on intervention. He said there have been nervous moves in thin markets.
Just before 5 p.m. New York time Wednesday, dollar yen broke through the 79.75 level and continued to tumble to as low as about 77. Reuters reported that the G-7 finance ministers are expected to hold a conference call Thursday evening New York time to discuss the crisis in Japan.
"It was testing the all time low, testing, testing. Then it went though it. It was just like an air pocket really. It just went crunch right through," said Deutsche Bank chief currency strategist Alan Ruskin. "The absence of the central bank has been stunning actually."
The yen has been rising since the 9.0 magnitude earth quake struck Friday, on speculation that Tokyo would be repatriating yen to pay for the damage. The uncertainty about Japan's nuclear crisis has caused even more speculation, as investors watch the struggle to control damaged nuclear reactors at the Fukushima Daiichi power plant.
"The irony is the worse things get in Japan, the stronger the yen gets," said Boris Schlossberg of GFT Forex. "I don't think it ends unless the central bank comes in and intervenes. There's so much sentiment on the side of long yen that it's going to take a lot of capital to push dollar yen back up. The one thing I can assure you of is this is going to be a very volatile night."
The dollar has periodically attempted to strengthen against the currency but it has largely been lower in the last several days. "It really raises the question of how much the central bank is really functioning. There might be other factors at play. I think you have to be a little wary. G-7 has a conference call. I can't imagine these guys are going to let this thing go into freefall," said Ruskin.
"If there was any time for coordinated intervention it would be now," said Ruskin.
At the same time, the Swiss franc was making new highs against the dollar in early evening trading in a flight-to-safety trade. "It's a kind of straight forward 'all hell's breaking loose' between the Middle East and Japan," said Ruskin.
Currency markets also were rife with rumors that the Tokyo Stock Exchange wouldn't open for trading on Thursday, which the exchange denied.
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