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G7 vows cooperation on financial crisis, warns on yen
2008-10-27
TOKYO (AFP) - The Group of Seven major economies on Monday vowed to work together to protect the crisis-hit financial system and fired a warning shot to currency traders over the surging yen. But their efforts to soothe skittish markets fell on deaf ears with global stocks plunging and the yen rising back up towards fresh 13-year highs against the dollar. Unless the G7 takes "drastic steps" such as joint market intervention to sell the yen, the currency is unlikely to come down, said Kenichi Yumoto, vice head of forex trading at Societe Generale in Tokyo. In a brief joint statement, the G7 finance ministers and central bankers reaffirmed their shared interest in "a strong and stable international financial system" and pledged to cooperate to tackle the crisis. They voiced concern about "excessive volatility" in the yen and its "possible adverse implications for economic and financial stability." Dealers noted that it was the first time since 2000 that the yen has been mentioned in a statement by the G7, which comprises Britain, Canada, France, Germany, Italy, Japan and the United States. The yen hit a 13-year high against the dollar and a six-year peak versus the euro Friday as investors unwound risky bets funded with cheap Japanese credit. After a fleeting rebound following the G7 remarks, the dollar fell back to 92.48 yen in early European trade, down from 94.24 in New York Friday. "It would likely take physical multilateral intervention to halt yen appreciation," said Barclays Capital analysts. "The risk of this has increased but we expect it to happen only if the dollar-yen falls sharply below 90, rather than immediately," they added. Speculation grew that Tokyo might decide to intervene on its own to curb the yen's rapid ascent, which is taking a heavy toll on exporters. Japan's last foray into the currency market was in 2004. Japan's Finance Minister Shoichi Nakagawa warned that "excessive" volatility in the yen exchange rate was destabilising Asia's biggest economy. "I will continue to watch currency markets with great interest," he said. Some analysts said that the US and the eurozone authorities are unlikely to support joint intervention yet to sell the yen, whose strength is taking some pressure off US and eurozone exporters. But the Japanese authorities fear a return to deflation and may sell the yen even if they do not have the support of the rest of the G7, said Bank of Tokyo-Mitsubishi UFJ analyst Derek Halpenny in London. "The risk of intervention is now very high with the underperformance of Japanese equities and risks of deflation strong reasons for concern in Japan. Unfortunately, the factors driving yen strength suggest intervention will fail to turn the current strong momentum for long," he warned. The strength of the yen has battered Japan's stock market and ratcheted up the pressure on its export-dependent economy, which is already on the verge of recession. The Nikkei index plunged to a 26-year low Monday. Australia's central bank intervened again Monday to prop up the local dollar, which nevertheless closed down 4.2 percent against the greenback as investors dumped high-yielding currencies and fled to safe havens.
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