Yen Rallies On G7 Clarification

The new Japanese government has made it clear that they wish to see the Yen depreciate against major currencies in order to help boost the nation’s exports by making them more competitive. The government took power in December, but the currency has been depreciating since mid-summer and has fallen by 26% against the Euro since early July. Fundamental analysis would suggest that the Yen has still a long way to fall since its rise was due to Japan’s currency’s perceived status as a safe haven during the global financial crisis rather than any underlying economic strength.

The Yen gained in strength against other major currencies following clarification of comments made by a G7 official. It initially appeared that there were concerns about “excess moves in the Yen” which led to some investors reversing Bearish positions on the Yen. Japan interpreted the comments (bizarrely) to mean that there were no concerns on the weakening Yen. Japanese Finance Minister, Taro Aso claimed that a G7 statement “recognized that Japan's reflationary policies are not aimed at affecting foreign exchange”.
If there were to be international concern and action taken on the Yen, the currency would be likely to appreciate somewhat and stabilize – however, market forces could well determine the rate rather than central bank interventions.

The question of foreign currency rates is likely to be on the agenda of a G20 meeting in Moscow later this week. The French have voiced their concerns that the appreciation of the Euro may be too strong and could harm Eurozone (French) exports, but both the ECB and Germany have been quick to rule out intervention to soften the Euro. The ECB stated that its role was to ensure price stability rather than intervene in forex markets to set a target value for the currency.