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G7 countries agree on intervention to control yen rise G7 countries agree on intervention to control yen rise
(about 1 hour later)
Finance ministers from the G7 group of the world's richest nations have agreed to step into currency markets in a bid to control volatility in Japan's yen.Finance ministers from the G7 group of the world's richest nations have agreed to step into currency markets in a bid to control volatility in Japan's yen.
It is first time since 2000 that G7 countries have jointly intervened in currency markets.It is first time since 2000 that G7 countries have jointly intervened in currency markets.
Earlier this week, the yen hit its highest level since World War II against the US dollar, adding to fears over Japan's recovery.Earlier this week, the yen hit its highest level since World War II against the US dollar, adding to fears over Japan's recovery.
The yen weakened to 81.81 against the US dollar after news of the plan.The yen weakened to 81.81 against the US dollar after news of the plan.
The nuclear crisis in Japan, coming soon after a huge earthquake and tsunami devastated the coastline, have hit financial markets around the world as many worried about the impact on the global economy. The nuclear crisis in Japan, coming soon after a huge earthquake and tsunami devastated the coastline, has hit financial markets around the world, with many worried about the impact on the global economy.
Market reactionMarket reaction
The effect of the G7 decision was immediate as the Nikkei 225 index gained 2.7% on Friday to close at 9,206.75 points.The effect of the G7 decision was immediate as the Nikkei 225 index gained 2.7% on Friday to close at 9,206.75 points.
In Europe, shares also responded to the intervention. The UK's FTSE 100 index rose 0.5% to 5,722 and the benchmark German and French indexes both gained 0.8%.In Europe, shares also responded to the intervention. The UK's FTSE 100 index rose 0.5% to 5,722 and the benchmark German and French indexes both gained 0.8%.
"As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability," the G7 said in their statement."As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability," the G7 said in their statement.
"We will monitor exchange markets closely and co-operate as appropriate.""We will monitor exchange markets closely and co-operate as appropriate."
Meanwhile, the Bank of Japan injected an extra 3 trillion yen ($37bn; £23bn) into the markets on Friday in a bid to shore up confidence and ensure liquidity.Meanwhile, the Bank of Japan injected an extra 3 trillion yen ($37bn; £23bn) into the markets on Friday in a bid to shore up confidence and ensure liquidity.
The G7 comprises the US, Japan, Germany, France, the UK, Italy and Canada.
'Slow things down''Slow things down'
The first intervention by the G7 nations comes after volatility in markets in the aftermath of the earthquake.The first intervention by the G7 nations comes after volatility in markets in the aftermath of the earthquake.
Japan's main Nikkei 225 index lost more than 16% on first two days of the week before recovering on Wednesday.Japan's main Nikkei 225 index lost more than 16% on first two days of the week before recovering on Wednesday.
But just as the stocks were recovering, the yen hit its record-high sending them into a tumble once again.But just as the stocks were recovering, the yen hit its record-high sending them into a tumble once again.
Investors were concerned a stronger yen will hit profits at some of Japan's biggest companies. Japan is the world's third-biggest economy and relies heavily on exports. A rise in the yen makes Japanese products less desirable abroad.
Nissan has restarted work at one of its four car assembly factories, but others are struggling still. Carmaker Toyota has halted operations at its 12 main assembly plants in Japan.
Nissan and rival Honda each lose around 2bn yen in profit a day with the shutdowns.
Electronics manufacturers fared little better.
Sony opened one factory, which makes optical films used in liquid TV screens, and adhesives. Seven other plants, which make everything from Blu-ray discs to lithium batteries, remain closed.
'Slow things down'
Analysts say the G7 decision is likely to soothe nerves.Analysts say the G7 decision is likely to soothe nerves.
"There are three reasons that are going to make it effective: This is a joint market action, it is conspicuous in its timing and it is across currencies," said David Forrester of Barclays Capital."There are three reasons that are going to make it effective: This is a joint market action, it is conspicuous in its timing and it is across currencies," said David Forrester of Barclays Capital.
However, analysts said that while the intervention will calm the markets, it may not have a drastic impact on the yen's value.However, analysts said that while the intervention will calm the markets, it may not have a drastic impact on the yen's value.
"The move down in dollar/yen was quite sharp and, historically, intervention is designed to slow things down rather than mark a turning point," Mr Forrester said."The move down in dollar/yen was quite sharp and, historically, intervention is designed to slow things down rather than mark a turning point," Mr Forrester said.
Effective response
G7 finance ministers had called for an emergency conference call to discuss how to deal with market volatility and the impact of a stronger yen on the global recovery.G7 finance ministers had called for an emergency conference call to discuss how to deal with market volatility and the impact of a stronger yen on the global recovery.
While there was speculation that the group would give the go-ahead to Japan to intervene in the foreign exchange markets, analysts have been surprised by a co-ordinated intervention.While there was speculation that the group would give the go-ahead to Japan to intervene in the foreign exchange markets, analysts have been surprised by a co-ordinated intervention.
"This is a huge surprise," said Fredric Neumann at HSBC. The G7 countries are the US, Japan, Germany, France, the UK, Italy and Canada.
He said the move was positive one as a co-ordinated effort by the biggest economies in the world would a have bigger impact than action by the Japanese central bank alone.
"Markets may doubt the effectiveness of individual central banks' intervention," he said.
"If several central banks step into the market in a co-ordinated fashion, it will undoubtedly have an effect." Mr Neumann added.