G7 intervention lifts Japan's shares

Japanese shares jumped nearly 3 per cent and the yen tumbled today after the Group of Seven agreed on rare joint intervention to curb the soaring currency and calm markets jittery over Japan's nuclear power plant crisis.

But the stock rally does not mean dramatic gyrations seen this week are over because the crisis at the power plant is still unfolding and the full impact of last Friday's devastating earthquake and tsunami is not clear, dealers said.

The move by the G7 to support the country as Japan struggles to cope with its biggest crisis since World War Two comes a day after the yen soared to a record 76.25 in chaotic trading.

The dollar rose more than 3 per cent to around 81.75 yen after the G7 announcement, which came just as the Tokyo stock market opened.

"It was as clear as it could be and it was huge," said Imre Speizer, a senior strategist at Westpac Bank in Wellington. "They said they will intervene and the whole world will intervene. This is much bigger than earlier expected.

"This is huge and it's having commercial effect. There can be a lot more upside in dollar/yen before the next 24 hours is over. Global coordinated intervention is very rare, but when it occurs it is usually very successful."

Equity markets elsewhere in Asia rose after the G7 bid to stabilise global markets, with the MSCI ex-Japan index up 1.3 per cent.

The G7 decision following a teleconference surprised markets. Investors had expected Bank of Japan to intervene to rein in the rampant yen, but had not expected coordinated central bank action by the world's wealthiest countries.

"This is the first coordinated intervention we have seen since 2000, so 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.

Traders said the Bank of Japan was immediately spotted buying dollars. Media reports and traders said it is likely to have bought more than $25 billion.

The Nikkei share average rose 2.7 per cent, but still closed down around 10 per cent on the week, which wiped $350 billion off the stock market.

The drop marked its biggest weekly slide since the 2008 global financial crisis. Trading volume was closer to normal on Friday after the frantic trading earlier this week.

Japanese government bond futures were little changed, while the spread on benchmark credit default swaps - the cost of insuring against a sovereign default - tightened.

Japanese stocks suffered their worst two-day slide on Monday and Tuesday since the 1987 global stock market crash. That followed a 9.0 magnitude earthquake and devastating tsunami on Friday that killed thousands and crippled the Fukushima Daiichi nuclear power complex about 240 km (150 miles) north of Tokyo.

Workers were struggling today in the latest attempt to cool overheating reactors and prevent further radiation leaks.

Shares of exporters, whose profits are eroded by a stronger yen, were prominent among the gainers today as the G7 pushed the currency lower. Fujifilm rose 6.6 per cent and electronic firm Kyocera gained 5.2 per cent.

But traders said much of the gains were from short-covering, and the index may stall next week as investors wait to assess the full economic and human cost of the quake and efforts to prevent a catastrophic radiation leak from the Fukushima Daiichi nuclear complex.

"The main things investors are worried about now are the nuclear plant, the impact of the earthquake and tsunami on firms and power cuts putting pressure on Japanese manufacturers," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

Investors will be waiting for earnings figures and forecasts in late April and early May for a better sense of how the triple disaster will affect individual companies.

"This correction will be very long," said Tetsuro Ii, CEO of Commons Asset Management. "We have the nuclear problems and impact of the quake on the economy, which is still hard to assess. I can't see the index bouncing back quickly to levels from before the quake."

Benchmark Japanese government 10-year bond futures fell early on, but recovered to close up 0.04 point to 139.74, while the 10-year yield on the cash bond edged up 1 basis point to 1.210 per cent.

"The crisis is pouring cold water on the Japanese economy. Personal consumption will be weighed by concerns over electricity shortages," said Nobuto Yamazaki, executive fund manager at DIAM Asset Management.

"Given such an environment, we can't expect a so-called 'good yield rise' in the near future. What would push up the yield of JGBs would be a worsening of Japan's fiscal positioning."

Benchmark five-year credit default swaps tightened around 10 basis points to about 110 basis points.

Reuters