- Associated Press - Thursday, August 4, 2011

TOKYO (AP) — Japan intervened in the foreign currency market Thursday and its central bank engineered a monetary boost, landing a one-two punch to knock the yen from levels that threaten the country’s post-disaster recovery.

The dollar, weakened by the dim U.S. economic outlook, sank to a near record low earlier this week. The move set off alarm bells in Tokyo where officials warned the yen’s climb would hurt the country’s vital exporters and sap momentum from an economy healing from the March 11 earthquake and tsunami.

The decision by Japanese authorities to sell the yen and buy the dollar immediately sent the greenback to 78 yen from the low-77 yen level, boosting the stock market. It later climbed toward 80 yen.

“The one-sided rise of the yen could have a negative impact,” Finance Minister said. “We have decided to intervene.”

A strong yen is painful for Japan because it reduces the value of foreign earnings for exporters like auto and electronics manufacturers, and makes Japanese goods more expensive in overseas markets.

Along with lackluster sales, Nintendo Co. cited the strong yen for undermining its bottom line. It reported last a deep loss in the latest quarter, cut its full-year forecasts and slashed the price of its new 3DS handheld device.

About 80 percent of the video game and console maker’s sales are outside of Japan.

Honda Motor Co. said earlier this week that the exchange rate erased 22.5 billion yen ($288 million) from its operating profit in the latest quarter. At Mazda Motor Co., the yen sapped 3.1 billion yen ($40 million) from its bottom line last quarter.

Thursday’s intervention was coupled with plans to inject liquidity into financial markets by the central bank’s policy board, which met Thursday for a shortened one-day meeting.

Amid increasing pressure from the government to help fortify the economy, the Bank of Japan voted unanimously to expand two existing fund-supplying tools by 25 percent to a total 50 trillion yen ($638.3 billion).

It will broaden a program to buy assets such as government bonds, Treasury bills and commercial paper. It also raised the amount of loans available in a short-term credit facility.

It kept its key interest rate range at zero to 0.1 percent.

The central bank cited concerns about U.S. and European debt, as well as inflation in emerging markets, and their uncertain impact on Japan’s nascent recovery.

“There is a possibility that these developments in overseas economies and the ensuring fluctuations in the foreign exchange and financial markets may have adverse effects on business sentiment, and consequently on economic activity in Japan,” its statement said.

The dollar hit a record post-World War II low of 76.25 yen in the days following the March 11 earthquake and tsunami.

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