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Unlike previous unilateral interventions by the Bank of Japan which have proven futile against market forces, today's coordinated policy action may have a more sustained impact on USD/JPY exchange rate. One of the more powerful examples of coordinated intervention occurred after the Plaza Accord when G5 nations in a reversal of today's policy move agreed to depreciated the value of the dollar against the yen. The dollar lost 51% versus the yen from 1985 to 1987 as result.

The news of today's G7 action sent USD/JPY soaring nearly 3 big figures to trade at 81.87 by early morning European session. The pair has gained more than 500 points since hitting a low of 76.25 in yesterday's Asia Pacific. The whipsaw price action has no doubt exerted a stiff dose of punishment to momentum traders who joined yesterday's down move after the pair broke its all time lows.

With G7 now providing a consistent bid for the pair, USD/JPY shorts will have a difficult time fighting the authorities especially if the situation in Fukushima nuclear power plant continues to stabilize, minimizing the possibility of a public health emergency and therefore reducing the chance of further risk aversion flows. As the short squeeze continues USD/JPY could retake the 82.00 level as the day progresses.

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