Currencies
The soaring euro has not only hit four-year highs against the U.S. dollar but it has hit lifetime records against the Japanese yen and the British pound sterling. The increases followed Thursday's decision by the European Central Bank not to lower interest rates.

The euro jumped to $1.1537 before easing. The currency has been buoyed by the woes of other economies, especially the U.S. where economic recovery is not as vigorous as some had predicted. This of course totally ignores the plight of the EMU economies - many including industrial power Germany are teetering on the precipice of recession. But there seems to be a growing perception that Europe is not much worse-off than other regions and that policymakers would like to see the euro gain in strength. Duisenberg, normally cautious, said on Thursday that there was nothing excessive about the value of the currency. At the same time, bank deposits in the eurozone yield interest rates twice as high as those in the U.S., thanks to aggressive rate cutting by the Federal Reserve.

Since last January, Japanese monetary authorities had conducted "stealth" interventions in the hope that the effect would be more profound than meddling in large amounts and acknowledging they had intervened. The stealth intervention surprised market players at first but the effect soon wore off. Japan said Thursday that it had sold yen to the tune of $20 billion in the first three months of the year, raising the prospect that it would continue to intervene to prevent the Japanese currency from becoming too strong. A detailed breakdown of the secret intervention shows that Japan sold yen, largely for the dollar but also for the euro, on 17 days in the first three months of the year. The first intervention was on January 15th when the dollar fell below ¥118. Some analysts think Tokyo may revert to the traditional method of muscling in.

There were already signs that a stronger yen was harming exports, especially in the car sector. Exports have been the one bright spot in an economy that is still struggling to gain momentum several quarters after it pulled out of its worst postwar recession. Japan has consistently said that it has no intention of intervening to weaken the yen but merely wants to ensure against extreme volatility. However, privately many officials say they would welcome a weaker currency. Added yen strength would also send Japanese shares to new multi-decade lows and thus increase losses of bank shareholdings, possibly jeopardizing the entire financial system. Japan is widely expected to intervene if the yen rises further.

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