* G7 launches first coordinated intervention since 2000
* Yen dives in Asia but falls milder in U.S.,Europe
* Traders bracing for extended intervention campaign
(Updates prices, adds comment, detail, changes byline)
By Steven C. Johnson
NEW YORK, March 18 (Reuters) - The yen fell on Friday as
Group of Seven rich nations carried out the first coordinated
intervention since 2000, and traders braced for what could be
weeks of official action to drive the currency lower.
The Federal Reserve and Bank of Canada said they sold yen
on Friday, adding to earlier efforts from European authorities
and the Bank of Japan after the G7 agreed on the joint effort
to reverse recent sharp yen gains and calm the near-panic
selling sparked by a crisis at Japan's nuclear power plants.
The dollar rose as high as 82.00 yen early in European
trade and was trading around 81.15 yen in New York, up about 3
percent on the day. <JPY=D4>. The dollar hit an all-time low
just above 76 yen earlier this week, sparking the G7 action.
"It's evident this is not just a one day event. The G7 has
made an extended commitment that we think will stretch over a
number of weeks, and we think it will be successful," said
Michael Woolfolk, senior strategist at BNY Mellon in New York.
"They've put a floor under dollar/yen at 80 and they will
be happy to stabilize it between 80 and 85," he said.
Hedge funds and other speculative accounts tested official
resolve by buying into the yen sell-off, but analysts said
authorities seemed set to fight any attempt to push it back
up.
If speculators try to push the yen back toward 80 per
dollar, "I'm sure the BoJ will quickly move it back up to 82
yen," said Adam Myers, senior strategist at Credit Agricole
CIB. "It will be a losing game for anyone who tries to bet
against them."
Analysts said central bank determination would help counter
repatriation flows from Japanese retail and corporate
investors, who are expected to bring money home to pay for
rebuilding after last week's earthquake and tsunami.
Upside targets were seen at 82.45, Monday's peak, and then
83.30 -- the intraday high from last Friday.
Tokyo market estimates had the Bank of Japan selling some 2
trillion yen ($25 billion) over the course of the day, similar
to its big one-day bout of intervention in September.
Markets remained on alert for more intervention from the
Fed and BoC throughout the trading day.
CALMING THE WATERS
The first G7 joint intervention in a decade capped a
frantic week for Japanese markets that saw the Nikkei suffer
its worst two-day rout since the 1987 crash and the yen soaring
as investors watched the country's nuclear crisis escalate.
The yen was driven higher by expectations of repatriation
flows and heavy selling by margin traders who were forced to
unwind trades funded with cheaply-borrowed yen when the
Japanese currency rose sharply against the dollar.
As the dollar rebounded, it got cheaper to hedge against
further yen gains. Implied volatility on one-month dollar/yen
options stood at 13.5 percent, from 21 percent on Thursday.
The euro rose to a four-month high against the dollar of
around $1.4145 <EUR=> after the intervention in euro/yen, up
around 0.8 percent on the day.
CO-ORDINATED EFFORT
All of the major G7 European central banks confirmed they
had joined in the move, pushing the euro to a session high of
115.56 yen from around 114.70. It was last up 4 percent at
115.02 yen <EURJPY=R>.
The Australian and Canadian dollars also jumped against the
yen, as did the South Korean <KRWJPY=R> and Chinese <CNYJPY=R>
currencies. The latter rates are important to Japanese
authorities because excess yen strength would make Japanese
exports more expensive than those from South Korea and China.
Some traders, though, said they wanted to see European and
U.S. authorities do more to counter a renewal of yen strength,
noting that intervention amounts spent in Europe were lower.
"They simply must do more," said a trader in London.
Dan Dorrow, head of research at Faros Trading in Stamford,
Connecticut, said "shock-and-awe G7 coordination" will contain
disorderly yen appreciation but said repatriation flows would
renew upward pressure on the currency in coming months.
Earlier this week, the BoJ poured money into the banking
system and increased an existing asset-buying program to help
weaken the yen and help an economy struggling with deflation.
But Paresh Upadhyaya, strategist at BofA Merrill Lynch,
said it may take a move toward higher interest rates in the
United States to sustain downward yen momentum.
"For intervention to be successful, it needs to be followed
by policy action," he said. "What would support that is if the
Fed starts openly debating exiting quantitative easing. That
would move interest rate differentials sharply in favor of the
dollar against the yen."
BofA Merrill Lynch sees the dollar hitting 88 yen by year
end.
The Fed said this week that higher commodity prices were
putting upward but temporary pressure on inflation and has yet
to signal a near-term change to its zero-interest rate policy.
(Additional reporting by Gertrude Chavez-Dreyfuss in New
York and Naomi Tajitsu in London; editing by Chizu Nomiyama)
