The yen fell against the dollar Friday after the G7 moved to weaken the Japanese currency. The dollar rose to 80.96 yen from 79.05 yen Thursday. The dollar, yen and Swiss franc tend to strengthen during times of geopolitical stress and other tensions that spark a flight to safe investments. NEW YORK/TOKYO: Japan bought billions of dollars to restrain a soaring yen Friday, backed by action from European central banks as the world's richest nations moved to calm markets made nervous by Japan's nuclear crisis. The moves are the first joint intervention in currency markets by the Group of Seven leading powers since they came to the aid of the newly launched euro in 2000, and signal the weight of concern about the wider impact of events in Japan. "We express our solidarity with the Japanese people in these difficult times, our readiness to provide any needed cooperation and our confidence in the resilience of the Japanese economy and financial sector," a G7 statement said. "As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate." The G7 groups Britain, Canada, France, Germany, Italy, Japan and the United States. It was their first coordinated intervention since 2000. The yen had strengthened sharply despite fears of a major hit to the Japanese economy from the natural disasters and resulting atomic crisis. The dollar rose sharply against the yen Friday in the wake of the G7 pledge, rebounding back above the 81 level. Traders estimating the Bank of Japan bought more than $25 billion. The G-7 action came after the crisis in Japan had pushed the US dollar to its weakest levels against the Japanese yen since World War II. The yen's strength in the wake of the disaster has been attributed to investors expecting the Japanese to repatriate funds from overseas to pay reconstruction costs – or in the case of insurance companies, to pay claims for the massive loss of property and life. “As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” the G-7 officials said in their statement. “We will monitor exchange markets closely and will cooperate as appropriate.” The action caught many analysts by surprise. They had expected the G-7 would endorse efforts by the Bank of Japan to intervene but would not authorize a joint effort to trim the yen's recent gains against the dollar. A series of European central banks confirmed they were intervening and stock markets surged, although dealers said the initial intervention had been much smaller in scale than the Bank of Japan's and the impact in European time was more limited. Ahead of North American market openings, the Federal Reserve and Bank of Canada confirmed that they had joined the intervention as well - a show of resolve to market participants that the whole G7 was solidly behind Japan. No figures were available for how much they may have committed but analysts said the point was to show unity. "It's going to have a very huge resonating effect on the market," said Kathy Lien, director of currency research at GFT in New York. "Because the only type of intervention that actually works is coordinated intervention and it shows the solidarity of all central banks in terms of the severity of the situation in Japan." The decision by the G7 came as a surprise to many because Tokyo had indicated it was looking only for moral support for its attempts to assuage markets rather than joint action. A source said the BOJ would also leave the yen it sold in the banking system rather than mopping it up, thus adding to the vast amount of liquidity it had already provided to support its domestic markets. Central banks will often issue bonds to soak up any extra cash in the economy that results from currency intervention for fear that the additional liquidity could fuel inflation. G7 financial leaders may be worried that a surge in yen repatriation could create a crisis of confidence in markets already struggling in the face of Europe's debt problems and the impact of unrest in the Middle East. President Barack Obama underlined the concern in Washington by saying Thursday the United States would do all it can to help Japan recover while playing down fears a drifting cloud of radiation could reach the US West Coast. Japan's triple disaster, unprecedented in a major developed economy, is already disrupting global manufacturing. Makers of equipment for mobile telephones to carmakers and chipmakers have warned of a squeeze on their businesses given Japan's crucial role in many supply chains that keep global commerce ticking over. "I think the world economy is going to go right down, and it has happened at a time when financial markets are still fragile," said a G7 central banker who declined to be named. An even stronger yen could make it more difficult for exporters in the world's third largest economy to recover from the triple blow of last week's earthquake, tsunami and nuclear threat. The damage toll is already estimated at up to $200 billion with Japan almost certain to slip back into recession. "The aim is obviously to support our Japanese partner, express our solidarity and obviously to halt the yen's rise," French finance minister Christine Lagarde told French radio. "The country has suffered enough catastrophe and calamity to try to avoid, in addition, a deep economic and then financial crisis resulting from a rising currency and preventing the Japanese from exporting as they usually do." Global stocks rose Friday as traders took on riskier investments following a Libya ceasefire that reduced tension in the region, and after several central banks intervened to stabilize the yen. World shares as measured by MSCI advanced 0.6 percent. That gain helped the index erase some of its 5.6 percent drop over the past six trading days and brought the index near even for 2011. The Dow Jones Industrial Average of 30 blue chips gained 81.88 points (0.7 percent) to 11,856.47 in closing trade while the broader S&P 500 added 5.26 (0.41 percent) to 1,278.98. The tech-driven Nasdaq Composite picked up 7.62 points (0.29 percent) at 2,643.67. The FTSEurofirst 300 added 0.2 percent to close at 1,088.82. Japan's Nikkei share index climbed 2.7 percent.
