The government and the Bank of Japan sent a strong message to foreign currency markets Wednesday by intervening in the currency trade for the first time since March 2004, to stem the rise in the value of the yen against the dollar. This was a surprise move because Prime Minister Naoto Kan had been considered reluctant to intervene in the currency market (in contrast to Mr. Ichiro Ozawa, former Democratic Party of Japan secretary general, who lost the party presidential race to Mr. Kan on Tuesday).
Unilateral yen-selling, dollar-buying intervention on Japan's part was conducted after the yen traded at ¥82.80 to the dollar, a 15-year-and-four-month high, at one point Wednesday morning. After the intervention, the dollar rose above ¥85.
A steep rise in the yen's value could seriously damage the economy by reducing Japanese exporters' revenues — thus leading to a hollowing out of manufacturing sectors — and by causing stock price falls. The government and the BOJ should show strong determination in stemming an excessively strong yen by taking necessary additional steps.