Tokyo: The Group of Seven major economies said on Monday that the yen’s recent “excessive” volatility was bad for the global economy and pledged to cooperate to protect the financial system.
“We reaffirm our shared interest in a strong and stable international financial system,” finance ministers and central bankers from the G7 major industrialised nations said in a brief joint statement released by Japan.
“We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability. We continue to monitor markets closely and cooperate as appropriate.”
The surprise statement from the G7, which comprises Britain, Canada, France, Germany, Italy, Japan and the United States, came after the yen hit a 13-year high against the dollar and a six-year peak versus the euro last week.
The remarks, however, had only a muted impact on the currency market.
The dollar rose to 94.11 yen after the joint statement was issued, up from compared with 93.90 in early Tokyo trade but weaker than its level of 94.24 in late New York trade on Friday.
“It would be difficult (for the G7) to bring the yen down significantly unless they take drastic steps such as intervention,” said Kenichi Yumoto, vice head of forex trading at Societe Generale in Tokyo.
He said the statement - issued while North American and European markets were closed - appeared to be a Japanese initiative.
“If it were a joint statement in a true sense, other G7 countries would be making back-up comments now,” Yumoto said.
On Friday the dollar had dropped to the upper 90-yen level for the first time since August 1995, while the euro slid below 114 yen to levels not seen since December 2002.
The yen often rises at times of financial turmoil as dealers unwind risky bets funded with cheap Japanese credit.
Japan’s Finance Minister Shoichi Nakagawa earlier warned that “excessive” volatility in the yen exchange rate was destabilising Asia’s biggest economy.
The comments sparked fresh speculation that Tokyo may intervene in the market for the first time since March 2004 to curb the yen’s rapid ascent, which is taking a heavy toll on exporters.
Such “disorderly” moves were negatively affecting economic and financial stability, Nakagawa told reporters.
His remarks were echoed by the chief spokesman for Prime Minister Taro Aso’s government.
“The Japanese yen’s strength isn’t necessarily always a bad thing,” Chief Cabinet Secretary Takeo Kawamura told a news conference.
“But the impact that the higher yen would have on Japan’s real economy is concerning, so the government needs to implement appropriate measures,” Kawamura said.
Analysts believe, however, that for now the US and the eurozone authorities are unlikely to support joint intervention in the market to sell the yen.
The strength of the yen has battered the Japanese stock market because of concerns about the impact on exports. At one point on Monday the Nikkei index dropped to the lowest level in 26 years.