G7 silently assents to intervention

Nonresponse to yen selloff backs Japan's stance on volatility: Noda

by Shinya Ajima

Kyodo News

WASHINGTON — Japan may have been the biggest beneficiary this weekend when the Group of Seven leading economies responded ambiguously about its currency intervention last month, which drew fire from U.S. and European lawmakers.

It is almost impossible for Japan to step into the currency market to weaken the yen if its G7 peers oppose it. But given their vague response to the intervention — Japan’s first in more than six years — Tokyo is believed to have won more leeway to go it alone.

“I explained our currency intervention,” Finance Minister Yoshihiko Noda told reporters after the group met over dinner Friday. “The discussions did not broaden after my explanation,” he added, suggesting he faced no criticism from the other G7 members — Britain, Canada, France, Germany, Italy and the U.S.

Noda said that during the meeting in Washington, the G7 reconfirmed it will not tolerate excess volatility in foreign-exchange rates because of fears of its negative fallout on economic and financial stability, calling the agreement between members an “achievement” for Japan.

The yen rose to a fresh 15-year high of 81.72 to the dollar on Friday in New York in expectation of further monetary easing by the U.S. Federal Reserve, breaking out of the ¥85 range it was left in after the intervention on Sept. 15.

Japan did not clarify its next move.

“If we said we are planning another intervention, then we would have been forced to explain more,” a senior Japanese official said on condition of anonymity.

Some market participants, though, have begun raising concerns about additional intervention.

“If the United States keeps quiet, then Japan has a chance to do it again, even if European members disagree,” said Osamu Takashima, chief FX strategist at Citibank Japan Ltd.

U.S. Treasury Secretary Tim Geithner made no specific comment on Japan’s intervention when he held bilateral talks with Noda on Saturday, according to Japanese officials. But there are also views that the G7′s silence does not necessarily constitute a green light for Japan.

“It certainly does not mean Japan can intervene more easily next time,” a conference source said, adding that G7 simply didn’t have enough time to discuss Japan’s intervention.

The G7, which has been losing its predominance as a premier international forum to discuss economic and financial issues to the wider Group of 20, held only a dinner session that lasted about three hours and refrained from issuing a joint statement — its main tool for communicating with the world.

The Chinese currency was a more significant issue at the meeting, the source said, while underlining that the G7 “may have put priority on finding unity in pushing China” to allow the yuan to appreciate at a faster pace.

After staging the intervention last month, Japan was criticized by some U.S. and European lawmakers who said Tokyo’s action will complicate their efforts to persuade Beijing to adopt a more flexible currency system.

But such criticisms have been put on the back burner, at least for now.

The G7, as well as the annual meetings of the International Monetary Fund and the World Bank, also held this weekend in Washington, revolved around talk of a “currency war” at a time when emerging market and other economies, such as China and South Korea, have been racing to undervalue their currencies to keep their exports competitive.

The G7 members also confirmed that they will jointly request those major developing economies with current account surpluses to adopt a more flexible currency system and let their exchange rates reflect economic fundamentals.