Japan steps in to weaken the yen for first time in six years

Japan has poured more than 1 trillion yen into the foreign exchange markets to pull down the value of its currency, whose strength has threatened to undermine the country's economy.

The startling size of the intervention, the first in six years, sent the US dollar surging 3 per cent against the yen, and the Japanese government signalled that its efforts could continue at least into a second day.

Naoto Kan, the Prime Minister, triggered the action after fending off a leadership challenge from within his party and after the yen hit a 15-year high against the dollar.

The inexorable rise of the yen has been causing howls of discontent from Japan's exporters, and the apparent initial success of the operation was greeted with support from business leaders. Honda and Sony were among the companies applauding the action.

However, currency traders were sceptical that the effects of the intervention would prove sustainable unless they are co-ordinated with other central banks around the world.

The exact scale of the selling was not disclosed, and it continued through Asian, European and later North American trading sessions. Traders estimated that it easily topped ¥1trn, and was approaching twice that amount.

The Prime Minister had promised "bold" action and told reporters yesterday that the authorities would continue watching foreign exchange moves with a sense of urgency.

The dollar rose to ¥85.72 from its 15-year low beneath ¥83, its biggest daily gain in nearly two years. At lunchtime in New York trading it was up 3.1 per cent at ¥85.60.

The Chief Cabinet Secretary, Yoshito Sengoku, told a press conference that the ¥82 per dollar level was being defended, setting a figure that currency traders said would tempt markets to test the government's resolve in coming days.

"It is far less clear that intervention will be effective in a world of zero interest rates and excess liquidity, but we think that it still makes sense for Japan to take action to try to arrest yen strength," Richard Jerram, the chief Asia economist at Macquarie Securities in Tokyo, said.

The newly issued yen will be allowed to remain in circulation, adding a new monetary stimulus to the economy.

The billionaire investor George Soros, whose bets against the pound forced sterling out of the European exchange rate mechanism in 1992, also praised the move. "They are hurting because the currency is too strong so I think they are right to intervene."

The strength of the yen had made Japan something of an odd man out as other governments practised a benign neglect of their currencies, helping to make their exports more competitive in world markets. Western countries are looking to trade with fast-growing emerging markets as a means of pulling out of recession and rebalancing their economies away from debt-fuelled domestic consumer spending.

In the US, the unilateral move by Japan prompted political concern. Sander Levin, the chairman of the House of Representatives Ways and Means Committee, which is investigating whether China is manipulating its currency, called the Japanese intervention "deeply disturbing".

In Europe, Jean-Claude Juncker, the chairman of the Eurogroup of eurozone finance ministers, said: "Unilateral actions are not the appropriate way to deal with global imbalances."