* Yen drops more than 3 pct vs dollar to 81.80
* G7 agrees on joint intervention, BOJ kicks it off
* BOJ to keep intervetion unsterilised, pumps liquidity
* More intervention expected if USD/JPY falls towards 80
(Updates prices)
By Hideyuki Sano and Ian Chua
TOKYO/SYDNEY, March 18 (Reuters) - The yen tumbled more than
3 percent on Friday after Group of Seven finance ministers
agreed to immediately and jointly intervene against the Japanese
currency's surge to a record peak, with Bank of Japan buying
pushing the dollar above 81 yen.
Japanese Finance Minister Yoshihiko Noda said Japan agreed
with central banks of the United States, Britain and Canada as
well as the European Central Bank to jointly intervene in the
currency market. Markets were caught off guard by the first
joint action in over a decade, expecting Japan to act alone.
Traders said the Bank of Japan was spotted buying dollars
throughout the day, even while running into hefty offers. Tokyo
market estimates put the BOJ's intervention at 2 trillion yen
($25 billion) over the course of the day, similar to its big
one-day bout of intervention in September.
Each respective central bank agreed to intervene and sell
the yen when their markets open. Traders said they expected the
Bank of England and European Central Bank to start intervening
around 0700 GMT to 0800 GMT.
Market players expected Japan and other central banks to
keep intervening if the dollar threatened to fall back below 80
yen and make a run at the 76.25 all-time low struck on Thursday.
The G7 has long warned against excessive volatility in
exchange rates.
But many traders were expected to need to unload dollars at
higher levels and slow any advance, especially after Thursday's
shocking plunge in dollar/yen that saw it collapse more than 4
percent in just an hour.
"It is a positive surprise," said Mitsuru Sahara, chief FX
manager at Bank of Tokyo Mitsubishi-UFJ in Tokyo.
"The impact will be there, as it is difficult now to sell
the dollar below 80 yen ... I think it is aimed at preventing a
sharp plunge and bringing dollar/yen back up to levels before it
started plunging, rather than trying to push it higher above 85
yen. I don't expect follow-up interventions to the upside."
The dollar's gains slowed after the initial burst higher,
with Japanese exporters and traders stuck with long yen
positions using the opportunity to unload. Some individual
Japanese margin traders were also spotted selling dollars.
The rare G7 joint intervention capped a frantic week for
Japanese markets that saw the Nikkei suffer its worst
two-day rout since the 1987 crash and the yen soaring as
investors watched the country's nuclear crisis escalate.
The dollar jumped nearly 4 percent on the day to as high as
81.90 yen on trading platform EBS, extending a rebound
from a record low of 76.25 yen plumbed on Thursday.
The dollar's resilience above 81.50 yen has it poised to
take a stab at 82.45, Monday's peak as the pair bounced, and
then 83.30 -- the intraday high from last Friday before this
week's fireworks.
On Thursday, dollar/yen's break of the 1995 record low of
79.75 triggered a cascade of automatic sell orders, some tied to
leveraged positions and structured FX derivatives, in thin trade
between the U.S. and Asian trading days.
Since last week's earthquake, the yen has climbed steadily
as Japanese and international investors cut carry trade
positions in higher-yielding, riskier assets such as the
Australian dollar.
Expectations that Japanese insurers and companies will bring
money home to pay for claims and reconstruction also contributed
to the yen's strength, but traders in Japan have repeatedly said
this risk was overblown.
The euro jumped 3.9 percent to 115.10 yen ,
boosted in part by comments from Japanese Finance Minister
Yoshihiko Noda that the European Central Bank may intervene in
euro/yen. But traders said the ECB was unlikely to buy euros in
the open market, instead working with the BOJ to buy dollars.
Commodity currencies, such as the Australian dollar,
performed even better and recovered a bit from their recent
hammering.
The Aussie surged 4.8 percent to 81.25 yen. For
the week, the Aussie shed 2.2 percent against the yen, but at
one point it had been down more than 9 percent. Against the
dollar, the Aussie was up 1.2 percent at $0.9930 .
WILL INTERVENTION BE SUCCESSFUL?
Some analysts doubted any intervention would be effective,
given the past experiences by the Bank of Japan and the Swiss
National Bank.
"Intervention is no panacea. Everyone knows it. Japan has a
much bigger credibility problem and that'll weaken the impact,"
said David Gilmore, a partner in FX Analytics in Essex,
Connecticut.
"I don't think we've seen the low in the dollar/yen. There's
still a lot of carry trade exposure. The world is really levered
up on this."
Other analysts said intervention may be more effective this
time than it was in September when Japan spent $26 billion to
weaken the yen but failed to ensure a lasting dollar rally.
As the dollar rebounded, the cost of hedging against a
further yen rise fell. Implied volatility on one-month
dollar/yen options was at 14 percent, well off highs
near 21 percent on Thursday and showing the market calming a
bit.
Views that the ECB was likely to lift interest rates soon
also helped underpinned the common currency, which last stood at
$1.4060 and was poised to make a run at the November 2010
peak and chart resistance near $1.4280.
The dollar bounced off a record low of 0.8852 Swiss francs
and was up 0.8 percent at 0.9054 francs. The franc had
benefited from the recent market turmoil as it is usually seen a
safe port in a storm.
The franc had earlier edged up after the U.N Security
Council voted to authorise a no-fly zone over Libya, prompting
further gains in oil prices.
($1 = 81.70 Japanese Yen)
(Additional reporting by Chikako Mogi in Tokyo, Reuters FX
analyst Rick Lloyd and Masayuki Kitano in Singapore and Wanfeng
Zhou in New York; Writing by Eric Burroughs; Editing by Richard
Borsuk)
