G-7 May Halt Yen’s Rise

The Japanese yen has hit a 13-year high trading at 92.80 to the dollar by late afternoon in Tokyo. Meanwhile, the Nikkei reached a 26-year low. The two are related. A rising yen makes it harder for the Japanese to export, and that’s the basis of their economy. To combat this, the G-7 have considered intervention, but have only made a statement thus far.

“We reaffirm our shared interest in a strong and stable international financial system,” the G-7 statement said. “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.”

French Finance Minister Christine Lagarde said the G-7 doesn't plan to sell the yen to halt its rise. “The yen has over the past 48 hours seen brutal trading that reflects a great volatility that's linked to current market moves,” Ms. Lagarde said in an interview today with Bloomberg News in Montpellier, France. “We wished to support this possible intervention of Japanese authorities knowing this would be about a purely Japanese intervention.”

Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London, told Bloomberg “This only serves to highlight the importance of the warning both as a statement of immediate intent and as a broader indication of the longer-term shift in thinking within the G-7. It seems one more piece of evidence than the pendulum is swinging back towards a pre-1996 world where the G-7 took a more activist stance in the currency markets.”

The Financial Times reported, “Taro Aso, Japan’s prime minister, instructed his ministers to come up as soon as possible with steps to shore up the sinking stock market, saying the market’s freefall and yen’s fast-paced appreciation were a “huge concern” in terms of their impact on the real economy. The Prime Minister specifically asked for measures to restrict short-selling, greater flexibility in rules governing the banks’ holding of stocks, an increase in the banks’ bail-out scheme being considered and measures to encourage retail investors to buy shares.”

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