WASHINGTON (Kyodo) The Group of Seven financial leaders displayed their confidence in the health of the global economy during their one-day meeting Friday in Washington, declaring the world economy is experiencing “its strongest expansion in more than 30 years” while saying little about the weakness of the yen.
The wording on the global economy in the G7 leaders’ statement is stronger than that adopted in their previous gathering in Essen, Germany, in February. However, they warned against complacency, saying “risks remain,” and indirectly urged investors not to make biased bets.
The financial chiefs from Britain, Canada, France, Germany, Italy, Japan and the United States sounded buoyant on the global economy as they were mostly of the view that the worldwide stock plunges from late February to early March represented a “good and healthy correction,” Japanese officials said.
On exchange rates, the G7 leaders repeated the expression adopted in February.
“We reaffirm that exchange rates should reflect economic fundamentals. Excessive volatility and disorderly movements in exchange rates are undesirable for economic growth,” the statement said.
The wording represents an indirect call by the leaders for the yen’s appreciation. But the statement did not single out the yen.
In the statement, the leaders said the U.S. economy “remains solid even as domestic demand moderates to a more sustainable growth path” and the euro area is “expecting a healthy upswing.”
“Japan’s recovery is on track and is expected to continue,” the statement said.
After describing economic conditions in each area, the G7 chiefs said, “We remain confident that the implications of these developments will be recognized by market participants and will be incorporated in their assessment of risks.”
The sentence, which the leaders adopted for the first time in the Essen statement, embodies a message to market participants urging them to be aware of the risks of unilateral movements or making one-way bets in their transactions, according to meeting participants.
Even though adjustments in global financial markets from late February did not inflict colossal damage on the world economy, the G7 leaders agreed on the need to keep issuing warnings to market participants, the Japanese officials said.
“Currently, the global market is fed with ample money and investors’ sensitivity to risks has been weakening. It is better to continue warning against complacency,” a senior Japanese Finance Ministry official said.
As for the remaining risks referred to in the statement, the official said these were represented by crude oil prices that have risen from levels late last year due to geopolitical risks and a surge in defaults of U.S. subprime mortgages.
The health of the U.S. subprime mortgage industry, which serves borrowers with poor credit histories at high interest rates, has stirred concern among market participants, as an increase in the rate of defaults by subprime borrowers has led to financial difficulties at some lenders.
The G7 finance chiefs also expressed their commitment to “maintaining price stability” for sustained global growth, in view of persistent inflationary pressure in the United States and Europe.
As for exchange-rate levels, Japanese Finance Minister Koji Omi said after the meeting that the G7 chiefs did not point to the weak yen as a problem. Omi added that in his view, the current market trend is rather the euro’s climb against other major currencies.
In the runup to the G7 meeting, the euro reached an all-time high against the, yen trading in the 161 yen range Friday for the first time since its introduction in 1999.
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