By Leika Kihara
STRESA, Italy (Reuters) -Financial leaders from the Group of Seven (G7) advanced countries on Saturday reaffirmed their commitment to warn against excessively volatile currency movements, language Japan sees as a green light to intervene in the market to to prevent rapid declines in the economy. yen.
The agreement followed fresh verbal warnings from Japan’s top currency diplomat Masato Kanda, who told reporters on Friday that Tokyo was ready to enter the market “at any time” to counter speculative moves in the yen that are hurting the economy.
“We reaffirm our May 2017 exchange rate commitments,” G7 ministers said in a statement on Saturday after their meeting in Stresa, Italy, in a nod to Japan’s call for the group to reiterate its view on the need for stability in the currency market .
The G7 group has long agreed that excessive volatility and disorderly currency movements are undesirable, and that countries have the power to take market action when exchange rates become too volatile.
Tokyo has argued that this agreement gives the country the freedom to intervene in the currency market to counter excessive movements in the yen.
“We are grateful that the G7 has reaffirmed its shared understanding on exchange rates. It is also reassuring for the markets,” Kanda told reporters after the financial leaders meeting on Saturday.
The G7’s language on exchange rate commitments was unchanged from the group’s previous statement issued on April 17, when financial leaders met in Washington on the sidelines of the International Monetary Fund meetings.
Two weeks after the April G7 meeting, Japan is said to have intervened in the currency market to support the yen and arrest what authorities described as excessive, speculative currency movements.
Although this prevented the yen from falling below the psychologically important level of 160 per dollar, the Japanese currency has not yet shown a clear recovery. The level stood at 156.98 per dollar on Friday, not far from the more than three-week low of 157.19 on Thursday.
There is also uncertainty about whether G7 countries will tolerate further forays by Japan into the foreign exchange market.
In a speech in Stresa on Thursday, US Treasury Secretary Janet Yellen said currency interventions should not be a “routine” tool to address imbalances and should be used only rarely and in a well-communicated manner.
The May 2017 communiqué of financial leaders, reaffirmed on Saturday, states that “excessive volatility and disorderly movements of exchange rates could have negative consequences for economic and financial stability.”
But it also called for exchange rates to be determined by the markets, and for members to “consult closely on actions in the foreign exchange markets.”
Kanda, who oversees Japan’s currency policy as deputy treasury minister for international affairs, said on Saturday he was in “extremely close contact” with his US counterparts on a daily basis, including in the markets.
The yen has lost 11% against the dollar this year on expectations that the US Federal Reserve will be in no hurry to cut rates, which would leave a wide gap between US rates and ultra-low interest of Japan.
Markets are focusing on whether Japan will intervene again to stem the persistently weak yen, which has become a headache for policymakers as it hits consumption by inflating the cost of importing raw materials.
