By: Dr. Mike Campbell
The Yen has appreciated to a post World War 2 high of 76.25 against the Dollar before relaxing back as investors speculated that the Yen would continue to rise as Japanese firms repatriate assets (so buying Yen and creating a demand which would send the currency higher).
Yesterday, it was announced that finance ministers from the G7 would hold a conference call to discuss how to deal with global currency market volatility. Analysts had expected the G7 to endorse plans by the Bank of Japan in the markets. Prior to the call, Japan’s finance minister had said that they would be keeping a close watch on the markets and the Japanese economy minister said that he was looking for psychological support from the G7 and that the situation had not destabilised enough to warrant an intervention yet.
However, as details emerged of the G7 conference call, it has become clear that a consensus has emerged that the time is right for action. The G7 announced that it would step into the currency markets today to reduce volatility in the Yen. News of the move pushed the Nikkei 2.7% higher to close at 9206.8 points and has also boosted European markets. The Yen moved higher on the news and is currently trading at 81.32 against the Dollar. Analysts anticipate that the G7 move will dampen volatility in the market (the G7’s stated aim) rather than lead to a marked depreciation in the Japanese currency. Whilst action by a central bank on its own has not proved to be a very successful tool to influence the market, a move with the backing of the world’s seven wealthiest nations is a different matter.