Japan Intervenes in Currency Market
Reports abound and the Japanese Finance Minister has confirmed that Japan did in fact intervene in the currency market today (15-09-2010) to weaken the Yen. USD/JPY traded at a low of 82.87 and quickly shot up by over 200 pips to 84.94 within a few hours. Several Japanese officials chimed in to support the action and to reaffirm the fact that further action will be taken should the markets see this as a JPY buying opportunity.
It is not clear at this time whether Japan acted alone or with assistance from other central banks (namely the Federal Reserve and the ECB). It is generally thought to be ill-advised for a central bank to act alone in such interventions because market consensus can often overpower its attempts to manipulate currency valuation - central banks often do not win against a rising tide of markets who smell blood. It should be noted however that the Bank of Japan has the second highest reserves after China, and will prove to be a strong adversary even if it is acting alone. It will also be interesting to see whether the Fed or ECB assisted in the manipulation, given their strong rhetoric against currency manipulation by China.
UPDATE (16-09-2010): It appears that the Bank of Japan was acting unilaterally, according to the chairman of EUR zone finance ministers Jean-Claude Juncker. See more details here.
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