Yen Climbs to Record Against Dollar

Traders Cite Deluge of Late-Day Buy Orders; Questions Swirl on Possibility of Central-Bank Intervention

By TOM LAURICELLA And JONATHAN CHENG

The Japanese yen rocketed to an all-time high against the U.S. dollar on Wednesday but gave back some ground in Asian trading on Thursday, as markets were buffeted by worries about the nuclear crisis in Japan.

The dollar rose to 79.31 yen Thursday in Asian trading after a sudden plunge by three yen to a record low of 76.32 yen on Wednesday. The fall, which pushed the yen more than 5% lower than late Tuesday's close of 80.81 yen, came late in the New York session and before Asian markets opened, a time when activity and staffing on trading desks generally is at its thinnest in the 24-hour-a-day currency markets.

Meanwhile, the Bank of Japan said it would pump five trillion yen, or about $63 billion, into money markets for a fourth consecutive day, part of its efforts to stem the currency's rise, which makes Japanese products more expensive overseas.

The yen had been on the rise against the dollar for much of the day, a continuation of a recent trend driven by talk that Japanese companies and individuals were buying yen to bring money home after last week's earthquake and tsunami. However, the yen had stopped short of piercing its previous post-World War II high against the dollar at 79.75.

It stalled at about 80 yen in part because many traders had been expecting the Bank of Japan to step in at that level. For Japan, a rising yen could further damage an economy already crippled by the earthquake and tsunami.

But when the dam broke, traders said the move was fueled by a cascade of orders to automatically buy yen once certain levels were breached. Traders said these buy orders had been left in the markets either on behalf of individual and institutional investors, or else were linked to currency derivatives.

Meanwhile, Japanese Finance Minister Yoshihiko Noda said Thursday that he is closely watching foreign-exchange markets, saying there have been nervous moves in thin trading conditions.

Taken together with comments by another senior Ministry of Finance official Thursday, the comments show Japanese officials appear to believe speculators are to blame for the yen's volatility, not repatriation flows back into Japan as some have conjectured.

Wednesday's move is one of the five-largest ever in the yen, according to Kathy Lien, director of currency research at Global Futures & Forex.

The surge came amid volatile trading across financial markets as speculation swirled over the fate of the nuclear plants stricken by Friday's quake. Comments from various energy officials whipsawed the markets, which already were vulnerable after enduring the political turmoil in the Middle East and North Africa. Underlying worries about the health of the U.S. economy in the wake of worse-than-expected housing data added to the fragile situation.

"It's been a very difficult time for the financial markets to sort through the headlines to figure out what's true and what is not," said Greg Anderson, a currency strategist at Citigroup Inc.

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Associated Press

A candle chart displaying the conversion rates of the U.S. dollar against the Japanese yen is shown at a foreign exchange firm on Thursday.

Many in the market offered up differing reasons for the yen's strength. Some cited the beginning of repatriation by Japanese insurers of money that will be needed to pay damage claims resulting from the earthquake and tsunami. Others said the yen buying was driven in part by Japanese investors exiting riskier investments abroad.

"Japanese investors, in particular, at times of crisis bring home yen," said David Mann, currency strategist at Standard Chartered Bank. Mr. Mann said the end of March also is the fiscal year-end for many Japanese corporations, who typically would be repatriating earnings from abroad.

The Dow Jones Industrial Average fell 242.12 points, or 2%, to 11613.30 in a session driven by speculation over the state of the reactors at Japan's Fukushima Daiichi plant. The Dow's drop was its biggest one-day slide in seven months, and sent the index briefly into negative territory for the year. The Dow is now down 5% in March. U.S. stock futures pointed to another drop Thursday as investors tried to gauge how the Japanese government will react to the yen's appreciation.

The Standard & Poor's 500-stock index and the Nasdaq Composite index tumbled into negative territory for the year, as the S&P 500 recorded declines in all of its 10 sectors.

The swings across financial markets marks a change from the start of the year when investors were becoming more comfortable that the global economic recovery was on track.
The sudden moves likely caught some traders flatfooted.
"If you are long dollar-yen, you have definitely been getting hurt over the last few days. It is a fairly popular position," said Nadeem Walji, of Duma Capital Management, a fund that makes trades on macro trends.
The question on the minds of many traders, however, was at what point the Bank of Japan will step in and whether it would ask other countries to help with the effort. U.S. officials likely would be reluctant to do that.

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The earthquake, tsunami and nuclear disaster, while certain to hurt the Japanese economy in the near term, doesn't appear to be turning into a threat to global economic growth. Japan is the third-largest economy in the world, but it hasn't been contributing much to global growth because its economy has been stagnant.
It is, however, a major link in the global supply chain, and its inability to bring its nuclear-power plants under control adds to global uneasiness at a time when confidence is in short supply.
The Bank of Japan has pumped roughly 45 trillion yen (nearly half a trillion U.S. dollars) into its financial system and expanded its purchases of securities to support asset values. By printing more yen, the Bank of Japan can help to hold down the currency's rise.
Broadly, "it is hard to see this as yen-positive event" in the long run, said Kenneth Rogoff, a Harvard University professor and former chief economist of the International Monetary Fund. Mr. Rogoff said the Japanese government is going to need to run up an already immense debt burden to rebuild.
Some argue that given the magnitude of the crisis, the Bank of Japan will act decisively. It last intervened in September, when the yen actually was weaker than it is today against the dollar, just below 83 yen. At that time the Japanese central bank launched its biggest one-day intervention effort, buying some $20 billion in the open market.
"The BoJ could even prove more aggressive in currency markets in the current situation than it had been last year," wrote Stephan Maier, currency strategist at UniCredit Bank Milan, in a research note Wednesday.
—Jon Hilsenrath and Steve Eder contributed to this article. Write to Tom Lauricella at tom.lauricella@wsj.com and Jonathan Cheng at jonathan.cheng@wsj.com