With strong support from the United States, Japanese authorities Thursday intervened in U.S. foreign exchange markets to prop up the sagging value of the yen. The dollar dropped sharply in response.
The step, and its strong endorsement by Treasury Secretary Robert Rubin, marks an abrupt shift in the U.S. policy of working to maintain the dollar's strength."We share the concern expressed by the Japanese prime minister about recent weakness in the yen, and in that context we welcome the action undertaken by Japanese authorities in the exchange market to support the value of the yen," Rubin said.
The dollar hit a 6 1/2-year high against the yen on April 3, when a dollar bought 135.2 yen. Thursday, the dollar was trading at 133.6 yen and then, after the intervention, plunged below 130.0 yen for a period of time.
Economists said the weak yen has threatened to derail the fragile recovery of financial markets in Asia and already is contributing to a sharp increase in the U.S. trade deficit.
"The Bank of Japan is intervening in New York markets," said Earl I. Johnson, foreign exchange economist at the Bank of Montreal in Chicago. "The fact that Rubin is coming out and sanctioning the intervention suggests we are no longer espousing a strong dollar."
Hans Bowman, vice president of foreign exchange sales for Swedbank in New York, said the intervention - the purchase of yen and sale of dollars - was timed for maximum impact