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The yen soared to a 40-month high against the dollar Tuesday, prompting the Bank of Japan to step in to block it from advancing further.

With the overnight upswing in the yen’s value in overseas markets carrying over into Tokyo interbank trading, the dollar fell to 106 yen in early morning trading, its lowest level since May 15, 1996.

The BOJ intervention drove the dollar back to 107.04-06 yen at noon, but the greenback soon slid back to settle at 106.55-58 yen at 5 p.m., compared with 107.77-80 yen late Monday.

In late New York trading Monday, the dollar traded at 106.44 yen, down from 108.81 yen late Friday.

Although government officials tried to talk up the dollar, suggesting the possibility of concerted intervention by the U.S. and Japanese central banks, market players were dubious.

There was a virtual consensus in the marketplace that coordinated market intervention by U.S. and Japanese monetary authorities is unlikely in the near term, and doubts remained over the effectiveness of the BOJ’s unilateral yen-selling intervention.

Currency market volatility may come up for discussion at the meeting of finance ministers and central bank governors from the Group of Seven industrial nations set for Sept. 25 in Washington, but an agreement on coordinated intervention appears unlikely, commercial bank officials said.

Vice Finance Minister Nobuaki Usui told reporters that monetary authorities have taken steps in line with remarks by Finance Minister Kiichi Miyazawa, confirming that the BOJ has sold yen for dollars.

Miyazawa indicated at a news conference earlier in the day that the government is ready to intervene in the market to stem the yen’s steep rise against the dollar.

Market players believe the BOJ is intending to slow the yen’s rate of advance rather than to stem it at any cost.

The market is trying to test the BOJ’s resolve to arrest the yen’s appreciation, bank officials said.

As for near-range prospects, nevertheless, they shared the view that much of the uptrend will soon run out of steam.

With the September book-closing for the fiscal first half drawing near, Japanese export-oriented companies will soon end their dollar-
selling to cover their export claims, said Masayoshi Iwasaki, senior manager at the Tokyo branch of Credit Lyonnais.

The yen’s proximity to 100 to the dollar could make the greenback look oversold and prompt Japanese investors to switch into dollar-based investment vehicles, said Kenji Hayashi, managing director at the Tokyo branch of WestLB Securities Pacific Ltd.

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