Japan to Boost Dollar Loans to Curb Yen

The Japan government decided to expand a lending program that will use government-held dollars to increase foreign acquisitions and investments in natural resources to about 10 trillion yen (about $130 billion), aiming to rein in the Japanese currency, the Nikkei business daily reported.

The expansion is part of a package of policy responses to the strong yen that the cabinet is set to approve on Friday, the newspaper said. 

Earlier plans for the lending program run by the state-backed Japan Bank for International Cooperation had called for $100 billion, or roughly 7.7 trillion yen, in loans, the paper said. 

The dollar funding will come from a special government account for foreign exchange interventions, the Nikkei said. 

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As yen surges, Japan warns of possible currency intervention

Japan warned Friday that it would consider intervention in the foreign currency market as a means to protect its disaster-hit economy, which is being held back by the strong yen.

The yen hit a four-month high of 77.50 against the dollar in Asia on Friday, as traders sought safer investments over concern that the United States was close to defaulting on its debt obligations.

The surge in the yen led Finance Minister Yoshihiko Noda to suggest that the currency’s strength gave a misleading picture of the Japanese economy.

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Yen-Dollar – Japan to Face ‘Full Force’ of Market on any Intervention

Japan will have to take on the “full force” of the market should it act to weaken the yen again after trading volumes versus the dollar returned to levels seen before its September intervention, UBS AG said.

Hedge funds clients “suddenly and dramatically” became cautious of trading in the currency pair after Japan intervened in the foreign-exchange market on Sept. 15 for the first time since 2004, the bank said. Two-way flows in dollar-yen have since been restored as benchmark 10-year Treasury yields began rising in November and reached a six-month high this week, Gareth Berry, a Singapore-based currency strategist wrote in a note to clients yesterday.

“We have seen a sharp revival in two-way flow in dollar- yen since U.S. yields began to trend higher,” Berry wrote. “If U.S. yields fall back, even temporarily, and Japan is forced to intervene again to support dollar-yen, the Ministry of Finance will have to push against the full force of a market that has fully regrouped.”

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Japan says will respond to yen surge

Japan finance’s chief said the government will "respond appropriately" to a surge in the yen after it hit a 15-year-high against the dollar amid a weakening U.S. economic recovery.

"We are closely monitoring a rapid rise in the yen," Finance Minister Yoshihiko Noda told reporters Thursday. His comments came a day after the dollar fell to 84.71 yen, the lowest since 1995.

The dollar climbed back to 85.70 in late Tokyo trade Thursday. Noda declined to comment on currency interventions by the government to prop up the greenback.

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