Brussels, 12/02/2007 (Agence Europe) - At its meeting in Essen at the weekend, the G7 was cautious, preferring, in its press release, to focus on the Chinese yuan rather than the Japanese yen. Wary of causing too abrupt an adjustment, the finance ministers of the world's seven most industrialised countries did not want to consider the Japanese currency as a separate problem. While criticising the Bank of Japan for not raising its reference rate despite the economic upturn, the Europeans ultimately settled for the usual comment in G7 press releases, reserving calls for vigilance for the press conference.
The final text said, as always, that exchange rates “should reflect economic fundamentals” and that excess volatility was “undesirable”. It noted too, that “Japan's recovery is on track and is expected to continue. We are confident that the implication of these developments will be recognised by market participants and will be incorporated in their assessment of risks”. Addressing journalists, the president of the European Central Bank (ECB), Jean-Claude Trichet, however, called for caution among investors, urging them to take account of the slight improvement in the Japanese economy and not to bank systematically on the yen falling. “We want the markets to be aware of the risk of one-way bets, particularly on the foreign exchange markets,” he said, going on: “One-way bets in the present circumstances would not be, it seems to us, appropriate. We want the markets to be aware of the risks they contain”. That meant that “G7 countries think that markets, particularly forex markets, should recognise the risk of moving too heavily in one direction,” acknowledged Japanese Finance Minister Koji Omi.
The G7, more inclined to highlight the dangers posed by the Chinese currency, repeated that the yuan had to be more flexible. “In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments take place,” noted the final text. The G7 ministers, vigilant with regard to hedge funds, agreed to further pursue and develop the issue before their meeting in May and have asked the Financial Stability Forum for a report on the matter. (ab)