ROME – The Group of Seven industrialized economies reiterated their readiness to fight “excess volatility” in currency markets in a statement issued after their two-day meeting in Rome.
However, the familiar phrase, which apparently caused no surprise to market participants as the G7 opted not to single out any specific currency, may cause further woes to Japanese manufacturers already under pressure from the sharp appreciation of the yen.
With the G7 not expressing concerns about the yen’s surge, “there is a possibility (it) could rise further” against the dollar and other major currencies, said Osamu Takashima, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The yen had surged to around 91 against the dollar shortly before the G7 statement. Japan’s major manufacturers, which largely depend on exports for their earnings, are crying out for help amid the combination of a strong yen and the economic downturn.
Whether the G7 countries would maintain their concern about the yen’s rise was one of the main focuses of the Rome meeting for many market analysts.
Takashima said Japanese won’t be able to withstand the yen’s rise to a range of between 85 and 90 to the dollar, and that the blunt statement by the G7 may push the currency and many Japanese firms into a “dangerous zone.”
Some experts said the G7 countries appear less concerned by currency markets at a time when they must consider the bigger picture of the global recession. and financial turmoil.
But others say the Japanese government should seriously address the predicament of many companies in the face of the strong yen, whose effective exchange rate, or trade-weighted value as measured against a basket of other major currencies, has surged nearly 30 percent since summer.
Failure to address the currency issue would only exacerbate the environment surrounding Japanese companies, sending to the U.S. and Europe the wrong message that Tokyo has accepted the current strength of the yen, said Hiromichi Shirakawa, chief economist at Credit Suisse in Japan.
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