G-7 countries announce joint currency intervention
Thursday, March 17, 2011; 11:06 PM
WASHINGTON -- Finance officials from the Group of Seven major industrialized countries on Thursday agreed on a coordinated effort to weaken the Japanese yen, which has surged to record levels following last week's earthquake and tsunami.
A super-strong yen could cripple Japanese exports, further worsening the economic impact of the disaster that killed thousands and triggered an unfolding nuclear crisis.
The coordinated intervention in international currency markets marked the first by the G-7 countries since the fall of 2000, when the G-7 intervened in an effort to bolster the euro.
In a joint statement issued following emergency discussions, the G-7 officials said that the United States, Britain, Canada and the European Central Bank will join with Japan in a "concerted intervention" in currency markets Friday.
"We express our solidarity with the Japanese people in these difficult times, our readiness to provided needed cooperation and our confidence in the resilience of the Japanese economy and financial sector," the G-7 finance officials said in their joint statement.
The announcement came following a telephone conference call among finance officials from the G-7 nations - the United States, Japan, Germany, Britain, France, Italy and Canada. U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke represented the United States on the call.
The announcement came just as stock trading opened in Tokyo on Friday and had an immediate positive impact. Tokyo's Nikkei index was up about 2 percent.
Shortly after the announcement, the yen fell against the dollar, dropping from 79.25 yen to buy $1 to 81.58 yen to purchase $1.
Japan's Finance Minister Yoshihiko Noda said the planned intervention was meant to calm "volatility" and G-7 governments were not aiming at a specific exchange rate for the yen.
In trading earlier this week, the dollar had fallen to the lowest levels in the post World War II period against the yen. That move could have boosted the fortunes of U.S. manufacturers but would have been a blow to Japan's export-dependent economy coming on top of the devastation from last week's earthquake.
The yen's strength in the wake of the disaster has been attributed to investors expecting the Japanese to repatriate funds from overseas to pay reconstruction costs - or in the case of insurance companies, to pay claims for the massive loss of property and life.
"As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability," the G-7 officials said in their statement. "We will monitor exchange markets closely and will cooperate as appropriate."
The action caught many analysts by surprise. They had expected the G-7 would endorse efforts by the Bank of Japan to intervene but would not authorize a joint effort to trim the yen's recent gains against the dollar.
The last U.S. currency intervention came more than a decade ago in 2000 during the administration of President Bill Clinton. It was a brief effort to provide support for the euro after its rocky launch the previous year.
The United States never intervened in currency markets during the presidency of George W. Bush. Officials in that administration believed that any government buying and selling of currencies would have only a short-term impact.