Intervention Is Back On the Agenda. By Nicholas Hastings

The Australians have probably been doing it.

The Swiss have almost certainly done it.

The Japanese are hoping they won't have to do it.

And now the Europeans look as it they wish they could do it.

Intervene to cap their currencies, that is.

Manipulating currencies was once seen as a thing of the past - a monetary relic employed by non-free marketeers such as the Chinese.

By 2004, even Japan, which had religiously intervened to keep the yen competitive in the past, bit the free-floating bullet and gave the bad habit up.

From then on, most major currencies were left to their own devices, buffeted only by interest rates, risk and underlying flows. Intervention became nothing more than the occasional sound-bite with government or central bank officials voicing satisfaction or otherwise with currency levels.

However, the credit crunch appears to have brought an end to those halcyon days.

With most major economies struggling to climb out of one of the worst recessions in recent history, export-orientated economies are finding they can't afford the luxury of just letting their currencies go.

Those that have found their currencies benefiting from a fall in the dollar and the recent ebbs and flows of global risk appetite have been forced to take action to prevent their exports from becoming uncompetitive.

For months, foreign reserve figures from the Reserve Bank of Australia have suggested it has been keeping a discreet lid on the Aussie's advance through covert intervention that has attracted little attention.

The Swiss National Bank has been less discreet.

In March, in June and again this week, the Swiss central bank has waded into the currency market all guns blazing in an effort to stop the euro from falling under CHF1.50. The bank may not actually admit to partaking in any of the exercises but its intention is pretty clear.




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So far, the Japanese have been spared the ignominy of public action. However, the new Japanese government that came to power early last month could well find a battle on its hands.

In what could only be described as a major policy mistake, the brand-new finance minister stated that intervention would never be employed to halt the yen's advance. Little did he know this was like waving a red flag at a bull and speculators immediately pushed the yen higher to test his resolve.

The minister has since backed down, suggesting that market intervention could yet be employed. However, his reversal could be too late, and as the Japanese economy continues to flounder and export growth becomes even more important, he may be forced to cap the yen's rally.

But it is the growing concern from euro-zone officials over the strength of the euro that is now grabbing market attention.

Like any other exporter, the euro zone is suffering from the recent rise in its currency. Since March, the euro has rallied by more than 15% against the dollar and for Germany, where exports account for as much as 45% of GDP, this is not good news.

This week, officials, including European Central Bank President Jean-Claude Trichet, have been out in force talking of the need for a strong dollar and suggesting the euro's weakness will be on the agenda at this weekend's Group of Seven leading nations summit in Istanbul.

Of course, this does not mean that the ECB will be abandoning its free-floating principles just yet. However, it does highlight the increased pressure on national governments and central banks to protect their own economies with the competitive devaluations that they once abhorred.

Early Friday in Europe, currencies were once again being driven by falling investor appetite for risk. A disappointing Institute for Supply Management survey from the U.S. and fears that the non-farm payrolls data will show a larger than expected 175,000 decline later Friday have both contributed to the slide in sentiment that has sent equity markets tumbling.

By 0645 GMT, the dollar had eased back to Y89.58 from Y89.77 late on Thursday in New York, according to EBS.

The dollar was generally higher elsewhere but the euro staged a rebound after early losses, rising to $1.4547 from $1.4526. It was still down against the yen at Y130.28 from Y130.39.