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Many currency strategists expect that the government will intervene if the yen starts to appreciate again, keeping it in a range from ¥76 to ¥79 per dollar, at least in the short term.TRUTH LEEM

Robert Cookson is the FT's Asia markets reporter



Just four months after the Japanese government last intervened in currency markets to drive down the value of the yen, policy makers are back in action. Their initial barrage on Thursday proved successful -- forcing the yen down from a morning high of about ¥77 against the dollar back towards ¥80 by early evening in Tokyo.



But the big question now is whether the Japanese authorities will be able over the coming months to keep the yen from strengthening beyond its postwar high of ¥76.25.



"The Japanese government should have enough arsenal to keep fighting for another while," said Takuji Okubo, chief economist at Société Générale in Japan.



Japan wants to prevent its currency from strengthening too far too fast to protect the competitiveness of its exporters, which are also suffering from the earthquake and tsunami that hit the country in March. Many currency strategists expect that the government will intervene if the yen starts to appreciate again, keeping it in a range from ¥76 to ¥79 per dollar, at least in the short term.



But others are less sure about the outlook for the Japanese currency, and point out that previous interventions -- in March and in September 2010 -- had little long-term impact. "The cynics could argue that the March 18 intervention by the BoJ hardly budged the strengthening structural trend," said analysts at GaveKal, the Kong Kong-based research house.



Japan's intervention in March was co-ordinated with the Group of Seven leading economies, increasing its market impact. But this time Japan acted on a unilateral basis. Daniel Hui, currency strategist at HSBC, said the closest parallel to Thursday's move was September 15, 2010, when the Japanese authorities intervened unilaterally, weakening the yen by less than 3 per cent over a two-day period. Half of that move was taken back within a week, and the yen was hitting new highs less than a month later.



"We expect something similar to play out this time," said Mr Hui.



Masafumi Yamamoto, a currency strategist at Barclays Capital in Tokyo, thinks the Japanese authorities are shaping up for repeated intervention in currency markets to defend the ¥76.25 level.



He said the maximum amount of yen the government could sell to weaken the currency was about ¥39,000-billion, which was "sufficient for repeated large-sized daily interventions for a month". Yet the outlook for the yen in the short and the longer term may lie in factors beyond the Japanese authorities' control -- in particular the outlook for the U.S. economy and the likelihood of further quantitative easing, or money creation, by the Federal Reserve.



In addition, Wednesday's move by the Swiss National Bank to stem the rapid rise of the Swiss franc could add to the appeal of the yen as a haven currency.



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