BOJ May Intervene Alone to Cap Yen's Gains, Morgan Stanley Says

By Patricia Lui

Oct. 28 (Bloomberg) -- The Bank of Japan may intervene alone to check the yen's strength, limiting the effectiveness of the action in currency markets, said Morgan Stanley.

The yen has climbed 14 percent against the dollar and 29 percent versus the euro this month as concerns the global economy is entering a recession prompted Japanese investors to sell higher-yielding assets. The Group of Seven yesterday issued an unscheduled statement, expressing concern ``about the recent excessive volatility in the exchange rate of the yen.''

``Unilateral interventions by Japan are likely after the G- 7 statement,'' wrote Stephen Jen, the global head of currency research at Morgan Stanley in London, in a note yesterday. ``I'm not sure how effective such interventions will be. My best guess is that they will help to temper the flows but not reverse the trend.''

French Finance Minister Christine Lagarde said today Japanese authorities are considering selling the yen for the first time since 2004, adding that it will be a ``purely Japanese'' intervention. Central banks intervene in foreign- exchange markets when they arrange purchases and sales of currencies.

The U.S. ``sees the benefits'' of a strong dollar which will boost confidence in U.S. assets and curb commodity prices,'' while Europe and the U.K. ``must be pretty pleased with the support that weak currencies are offering to their economies,'' Jen wrote in the note.

The Reserve Bank of Australia has intervened over the past three days to slow losses in its currency. Australia's dollar fell to its weakest since April 2003 earlier today, before paring losses. The Australian dollar traded at 60.94 U.S. cents as of 3:07 p.m. in Sydney, off its earlier low of 60.10.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net