During the early morning hours, Japan sold yen and bought dollars in order to stop the yen from strengthening. Dow Jones estimates that Japan may have spent as much as $20 billion to $30 billion in the transactions, pushing the yen 3.8 percent lower against the dollar.
The dollar, weakened by a dim U.S. economic outlook, sank to a near record low earlier this week. That set off alarm bells in Tokyo, where officials warned the yen's climb would hurt the country's vital exporters and sap momentum from an economy starting to heal from the March 11 earthquake and tsunami.
"The one-sided rise of the yen could have a negative impact," said Finance Minister Yoshihiko Noda. "We have decided to intervene."
Just to back up a bit, the reason governments do this is because a strong currency makes exports more expensive. That's the reason why countries, including the U.S., have been pressuring China to let the markets decide what the yuan is worth.
This morning, Bloomberg took a look at the broader picture of Japanese intervention, saying the move marks an end to what Brazilian Finance Minister Guido Matega called a "truce" in competitive currency devaluations, eight months ago.
As Bill reported yesterday, the Swiss also cut interest rates to control the franc. Here's how one expert framed the news to Bloomberg:
"We seem to be entering a new stage of the currency wars where it's not just the emerging markets that are responding to broad dollar weakness," said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore, who has written books on currency markets. "Expect much more intervention in the future and further acrimony in terms of how the U.S. dollar is doing."