FRANKFURT (MNI) – The European Central Bank confirmed that it
participated Friday in concerted G7 foreign exchange intervention to
halt the appreciation of the yen, which has risen sharply in the wake of
the disastrous earthquake, tsunami and nuclear crisis that have hit
Japan.

The G7 said in a statement that it had agreed, at the request of
the Japanese government, to join the concerted intervention “in response
to recent movements in the exchange rate of the yen associated with the
tragic events in Japan.”

It added its stock phrase that, “excess volatility and disorderly
movements in exchange rates have adverse implications for economic and
financial stability.” And it went on to say the G-7 would “monitor
exchange markets closely and will cooperate as appropriate.”

Clearly, the group intends to drive down the Japanese currency,
which on Thursday hit its highest level against the US dollar since the
second world war.

“Exceptional times require exceptional actions to be taken,” ECB
Executive Board Member Gertrude Tumpel-Gugerell said following the
announcement.

The move is indeed exceptional: It is the first time the G7 group
of wealthy nations has undertaken concerted action in the currency
markets since it propped up the euro in 2000.

The agreement highlights the extent of concern among policymakers,
and it quickly added fuel to speculation that the ECB might end up
postponing the rate hike it pencilled in for April.

Since an ECB rate increase is largely priced into exchange rates, a
decision to scrap April hike would likely help push up the dollar,
giving some relief to the Japanese currency, thus supporting the
collective G-7 efforts.

However, it would be hard to make a direct link between ECB
monetary policy and concerted currency intervention, since they are
aimed at entirely different goals. Staying true to its price stability
mandate, the ECB would seem more likely to step up the exchange rate
intervention if needed than to adjust Eurozone monetary policy to help
weaken the yen.

ECB President Jean-Claude Trichet on Friday confirmed that he had
nothing he wanted to change in his most recent monetary policy message:
“Nothing to add, nothing to withdraw, absolutely nothing. No new message
at all.”

But moments later, speaking at an event in Frankfurt, Trichet
concede that “the impact of the earthquake both on the Japanese and the
world economy is something that we will be thinking about deeply in the
coming days and discussing with the international community.”

If you throw the UN’s no-fly-zone resolution on Libya into the mix,
there is no denying that global tensions and uncertainty have risen
sharply in recent days. That makes the pre-announced rate hike less of a
certainty than it seemed just one short week ago.

Following the UN action, Libyan authorities announced a ceasefire
with the rebels and said they were “committed to accept the Security
Resolution.” However, should the U.S., France and the UK decide to put
the UN resolution into force and embark on military action, uncertainty
and turmoil could well rise to a level that would break the ECB’s
resolve to tighten policy just yet.

–Frankfurt newsroom +49 69 72 01 42; Email: jtreeck@marketnews.com

[TOPICS: MT$$$$,M$$EC$,M$X$$$,M$$CR$]