G-7 Warns on Yen's Gain; Japan Ready to Take Action (Update2)
By Keiko Ujikane and Jason Clenfield
Oct. 27 (Bloomberg) -- The Group of Seven industrialized nations expressed concern about ``excessive gains'' by the yen after Japan's currency soared to a 13-year high against the dollar.
The G-7 made an unscheduled statement after a request from Japan, Finance Minister
Shoichi Nakagawa said, adding that his government was ready to act if needed. The G-7 fell short of pledging concerted action to halt the yen's advance. Separately, Prime Minister Taro Aso said he'd draft measures to help counter the financial crisis.
Japan's
Nikkei 225 Stock Average has plummeted 33 percent this month as the soaring yen erodes earnings of exporters such as Sony Corp. The yen has gained as the risk of a global recession and an extended slump in the world's stock markets prompted investors to sell assets bought by borrowing in Japan, where interest rates are the lowest among industrial nations.
``The Japanese authorities must have thought it was important to address this as a shared G-7 concern,'' said Tomoko Fujii, head of economics and strategy at Bank of America Corp. in Tokyo. ``Otherwise the markets would think this is a Japan- specific problem that would make any unilateral'' selling of the yen by Japan less effective.
The yen traded at 94.12 per dollar as of 1:40 p.m. in Tokyo compared with 93.80 shortly before Nakagawa read out the G-7 statement.
The yen last week rose to a 13-year high against the dollar, while currencies of Canada, Australia, the United Kingdom and New Zealand sank by more than 5 percent.
Global Recession
``Many market participants are forced to liquidate their positions,'' said Fujii. ``It's unwanted liquidations because of risk reduction and hedge-fund redemptions and dollar shortages.''
Sony, the world's second-largest consumer electronics maker, last week cut its full-year profit forecast by 38 percent because of the stronger yen.
The proposals Japan's government is considering include a resumption of state purchases of shares owned by Japan's banks, said Hakuo Yanagisawa, a ruling Liberal Democratic Party lawmaker charged with dealing with the financial crisis. The decline in the stock market has eroded the value of shares banks hold as part of their capital.
Bank Stocks Tumble
Japanese banks tumbled on the Tokyo Stock Exchange today after media reports said they may seek to raise extra capital to offset unrealized losses on shareholdings. Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. sank more than 10 percent.
``We reaffirm our shared interest in a strong and stable international financial system,'' the G-7 statement said. ``We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability. We continue to monitor markets closely, and cooperate as appropriate.''
The ``unusual'' statement indicates policy makers are one step closer to international currency intervention, said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. ``If the yen appreciates below 90 yen, that may trigger a move.''
Japan hasn't sold its currency since March 2004 when the yen was trading at 103.42 against the dollar. The Bank of Japan, acting on behalf of the Ministry of Finance, sold 14.8 trillion yen ($157 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.
To contact the reporter on this story: Keiko Ujikane in Tokyo at
kujikane@bloomberg.net Jason Clenfield in Tokyo at
jclenfield@bloomberg.net
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