Late last week, while many were busy paying tribute to their Irish brethren with good cheer and libations, the Group of Seven (G-7) nations were busy monkeying around in foreign exchange markets with their first coordinated intervention in over 10 years.  What was their goal?  To devalue the Japanese yen.

Following the earthquake, tsunami, and nuclear crisis, something a bit counterintuitive happened.  The yen didn’t go down…it went up.  In fact, not only did it go up; it soared.

“The yen surged 4.5 percent in 26 minutes March 17 to a post-World War II high,” reported Bloomberg.  Pushing up the yen was the concern that Japanese investors would convert foreign investments back into Japanese assets to pay for reconstruction.  Sensing a mass repatriation of assets was underway, foreign exchange traders did their part to further strengthen the yen.

For large exporting countries, like Japan, a stronger currency hurts their economy…their products become more expensive to international consumers and demand drops.  So the U.S. Federal Reserve, Bank of Canada, Bank of Japan, the European Central Bank, the Bank of England, the Bank of France, Germany’s Bundesbank, and the Italian Central Bank all put their citizen’s money to use in the foreign exchange market in a coordinated effort to devalue the yen. Continue reading →