Author: Leika Kihara
STRESA, Italy (Reuters): Financial leaders of advanced Group of Seven (G7) countries reaffirmed their commitment on Saturday to warn against excessively volatile currency moves, which Japan sees as a green airy to intervene in the market to stop the yen from plummeting.
The agreement followed fresh verbal warnings from Japan’s top currency diplomat Masato Kandy, who told reporters on Friday that Tokyo was ready to step into the market “at any time” to counter speculative yen moves that are hurting the economy.
“We confirm our exchange rate commitments from May 2017.” G7 ministers said in a statement on Saturday after their meeting in Stresa, Italy, in a nod to Japan’s call for the group to reiterate its view on the need to ensure currency market stability.
The G7 has long agreed that excessive volatility and disorderly movements in currencies are undesirable and that countries have the power to take market action when exchange rates become too volatile.
Tokyo argued that the agreement gave it the freedom to intervene in the foreign exchange market to counter excessive yen movements.
“We are grateful that the G7 has reaffirmed its common understanding on exchange rates. It also calms the markets,” Kanda told reporters on Saturday after a meeting of finance leaders.
The G7’s language on exchange rate commitments was unchanged from the group’s previous statement issued on April 17, when financial leaders met in Washington on the sidelines of International Monetary Fund meetings.
Two weeks after the April G7 meeting, Japan is believed to have intervened in the currency market to support the yen and stop what authorities say were excessive, speculative currency movements.
While this has kept the yen from falling below the psychologically significant 160 per dollar line, the Japanese currency has yet to experience a clear rebound. On Friday, the rate for the dollar was 156.98, not far from the more than three-week low of 157.19 reached on Thursday.
It is also uncertain whether the G7 countries will tolerate Japan’s further entry into the exchange rate market.
Speaking to Stresa on Thursday, US Treasury Secretary Janet Yellen said that currency interventions should not be a “routine” tool for solving imbalance problems and should be used rarely and in a well-communicated manner.
A May 2017 statement from finance leaders, confirmed on Saturday, stated that “excessive volatility and disorderly movements in exchange rates may have adverse effects on economic and financial stability.”
But he also called for exchange rates to be determined by markets and for members to “consult closely on actions in foreign exchange markets.”
Kanda, who oversees Japan’s currency policy as vice finance minister for international affairs, said Saturday that he remains in “extremely close contact” with his U.S. counterparts every day, including on markets.
The yen has fallen 11% against the dollar this year on expectations that the U.S. Federal Reserve will be sluggish to cut interest rates, which would maintain a wide divergence between U.S. rates and ultra-low interest rates in Japan.
Markets are focused on whether Japan will intervene again to stem the stubbornly tender yen, which has become a headache for policymakers as it hits consumption by inflating the cost of importing raw materials.
