Japan Buys Dollars, Euros to Stem Yen’s Rise

Japan bought about $24.8 billion of U.S. dollars and euros last month to reverse a rise in the yen that threatened to choke exporters’ earnings, according to newly released government figures.

Japan sold yen seven times in the days after terrorists attacked the U.S. The most aggressive intervention in the currency market since early last year halted a 5% rally that pushed the yen to a seven-month high of 115.83 yen to the dollar. It was recently at 120.49.

A stronger yen erodes profits at major Japanese exporters such as Canon Inc. and Toyota Motor Corp., which make up about one-tenth of the economy. The Japanese government is relying on exports to help pull the world’s second-biggest economy out of recession.

“The government has no choice but to buy dollars to maintain the yen at 120 to the dollar,” said Kazutaka Kirishima, senior economist at Sumitomo Life Insurance Research Institute. “Lowering interest rates and increasing money supply haven’t been effective.”

The Bank of Japan has cut rates to zero and pumped trillions of yen into the economy to try to pull it out of an 11-year slump. Gross domestic product shrank 0.8% in the second quarter and probably contracted again in the last quarter, according to economists.

A stronger yen reduces the value of Japanese exporters’ overseas earnings when converted into yen.