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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, has hit financial markets around the world, with many worried about the impact on the global economy. | |
Market reaction | Market 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. |
'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. |
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. |
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. |
The G7 countries are the US, Japan, Germany, France, the UK, Italy and Canada. | |