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G7 Countries Agree On Intervention To Control Yen Rise

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Hmm, interesting ....


Finance ministers from the G7 group of the world's richest nations have agreed to step into currency markets in an effort to control volatility in Japan's yen.

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 the Second World War against the US dollar.

There are fears a strong yen will hamper Japan's recovery.

In Asia on Friday the yen weakened to 81.21 against the US dollar after news of the intervention plans.

The G7 said that the member nations would "join Japan, on March 18, 2011, in concerted intervention in exchange markets".

"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."

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.

The first intervention by the G7 nations comes after volatility in markets in the aftermath of the devastating earthquake and tsunami in Japan.

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.

Investors were concerned a stronger yen will hit profits at some of Japan's biggest companies.

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.

However, he added 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.

Effective response

Yen notes and dollar notes A strong currency may hurt profits at some of Japan's biggest companies

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.

"This is a huge surprise," said Fredric Neumann at HSBC.

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.

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Right so are we selling all our yen? I was reading an article about the automatic trades driving the volatility. Is there enough firepower to counter the underlying trend?

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