Japan sold its own currency again yesterday and signalled it was willing to let the yen drop sharply in order to support the economy and help the nation's flagging exports.
The aggressive intervention in the currency market by the Bank of Japan (BOJ) and strong words for a weaker yen from top financial diplomat Mr Eisuke Sakakibara came just as fresh data showed exports in May slumped across the board.
"Further weakening of the yen is possible if it is necessary for the economy," said Mr Sakakibara, Japan's vice finance minister for international affairs. "We are flexible on foreign exchange."
Tokyo authorities are ready to "take decisive action" again to stem a premature yen rise, he told reporters. "What is of paramount importance is to ensure Japan's economic recovery as soon as possible."
On the heels of the intervention last on Friday in which the BOJ unexpectedly bought euro for yen through the European Central Bank, the BOJ started the week by aggressively buying dollars and, in late afternoon, euros, Tokyo bankers said.
The BOJ was spotted in the market early in the morning around 120.70 yen and spent an estimated $5 billion in aggressive yen-selling bursts to drive the dollar as high as 122.55 yen.
Tokyo shares rallied strongly as exporters' stocks surged, with the benchmark Nikkei stock index climbing 307.59 points or almost 1.8 per cent to 17,738.85, its highest close since October 1997.
A strong yen hurts the Japanese economy by making its exports more expensive in other currencies and by shrinking the yen value of Japanese companies' overseas earnings.
A weaker yen also helps fend off deflation, which remains a threat despite half a year of fiscal and monetary stimulus and huge cash infusions into the banking sector. Although many in the market questioned the staying power of the BOJ's intervention, the aggressive yen-selling challenged the market view that the authorities simply wanted to defend the dollar at 120 yen.
Some also believe the Japanese authorities have abandoned a presumed stance of trying to keep the dollar below 125 yen.
