Yen hits record high against dollar

Japan’s central bank is continuing to pour cash into the banking system to calm jittery money markets as the yen shot to a record high.

The Bank of Japan injected an additional six trillion yen (€56bn) in same-day funds after the dollar hit 76.25 yen in the morning – an all-time low for the greenback in the aftermath of the earthquake and tsunami that killed thousands and triggered an unfolding nuclear crisis.

With same-day funds, banks in need can access cash immediately.

Germany’s finance ministry said the finance ministers of the Group of Seven major industrialised nations will hold a conference call on the situation in Japan later.

Mizuho Bank, Japan’s third biggest lender, said 5,600 automatic cash dispensing machines were back online by midday after blacking out at about 9am.

Tokyo endured more rolling blackouts and faces months of power shortages because of earthquake damage to nuclear and conventional power plants.

The utility that serves Tokyo has been forced to slash power supplies by a quarter. Power to parts of the sprawling region, which produces 40 % of Japan’s economic output, is cut for three hours a day.

Around the country, people queued for fuel and emptied supermarket shelves of food and other necessities.

Driving the yen to unprecedented highs were predictions that big Japanese investors like insurance companies would repatriate funds from overseas en masse to cover the cost of tsunami damage to north-eastern Japan, said Masafumi Yamamoto, chief foreign exchange strategist at Barclays Capital in Tokyo.

The repatriation hasn’t happened yet, so the volatility is “highly speculative,” he said. The market is now betting that the finance ministry and Bank of Japan will intervene to buy the dollar and weaken the yen, possibly in co-ordination with other G-7 nations.

A strong yen hurts Japan’s exporters, potentially deepening the already severe hit to the world’s No 3 economy from the multiple disasters.

Analysts at Goldman Sachs estimated that Japan’s disaster losses could reach $200bn (€142bn), which is more than 3 % of Japan’s gross domestic product.

The hardest hit prefectures (states) – Iwate, Miyagi, Fukushima and Ibaraki - represent about 7 % of Japan’s economy.

The region is home to steel plants, oil refineries, nuclear power plants and factories making parts for cars and electronics. Roads and other transport networks are crippled, while power supplies are limited.

The latest offer of central bank funding did not prevent stocks from losing ground again. The Nikkei 225 stock average closed down 1.4 % at 8,962.67 after plunging on Monday and Tuesday before partly recovering on Wednesday.

The Bank of Japan conducted emergency operations for the fourth day in a row, adding to the 55.6 trillion yen it provided money markets the previous three days.

By flooding the banking system with money, it hopes banks will continue lending and meet the expected surge in the demand for post-disaster funds.