Yen wanes against dollar as Japan intervenes
September 15, 2010
YOKOSUKA NAVAL BASE, Japan — The yen weakened sharply against the dollar Wednesday after Japan intervened in financial markets for the first time since 2004 by selling its national currency.
For U.S. servicemembers in Japan, the falling yen makes local goods and services cheaper.
The yen had strengthened to 82.88 against the dollar but began falling shortly before Finance Minister Yoshihiko Noda told reporters at 10:30 a.m. that Japan had begun selling billions of yen in $10 million increments.
“We will continue to closely monitor the movements of the exchange market and take decisive actions if necessary, including intervention,” Noda said, according to taped broadcasts of the press conference.
The yen finished trading at 85.40 to the dollar Wednesday afternoon.
The Japanese government intervened in an attempt to keep the strong yen from further wounding the nation’s economy, officials said. When the yen is strong, Japanese products become more expensive for global consumers.
However, sentiment among currency experts was mixed on whether the intervention would weaken the yen in the long-term.
The immediate effect of Wednesday’s intervention for U.S. servicemembers and government employees in Japan paid in dollars is greater purchasing power. A servicemember exchanging $2,000 for yen to pay rent off base Wednesday spent about $40 less than he would have on Tuesday, for example.
However, it also could mean a smaller paycheck next month.
The Defense Department considers whether to adjust cost-of-living allowances for servicemembers every two weeks in order to offset higher prices for goods and services in some overseas locations.
COLA is supposed to go up when the yen strengthens and down when it weakens, but often there is a time lag.
In recent months, COLA rates sometimes fell as the yen strengthened, meaning servicemembers were paid less even while their dollars bought less in Japan.
For example, an E-5 with 10 years of service and two dependents living off base received $693.60 in COLA for the pay period between Aug. 16 and Aug. 31.
That figured dropped to $650.25 from Sept. 1 to Sept. 15, even though the yen consistently strengthened during that time period from about 85.50 to this week’s rate of about 83 yen to the dollar.
Banks generally offer exchange rates between one and three yen less than the commercial exchange rate.