EDITORIAL : THE DAILY YOMIURI, JAPAN

Timely G-7 move stems yen's rise

The Group of Seven advanced economies abruptly staged a joint yen-selling intervention in currency markets Friday to stop excessive appreciation of the yen against the U.S. dollar.

This lowered the yen exchange rate to the 81-82 yen range from 76.25 yen on Thursday in Sydney, the highest level since the end of World War II.

A sense of security also spread at the Tokyo Stock Exchange and stock prices rose sharply.

The concerted intervention symbolized the solidarity between Japan and the six other members of the G-7--Britain, Canada, France, Germany, Italy and the United States--supporting the country after it suffered enormous damage from the massive earthquake March 11. We greatly appreciate it.

Before the latest intervention, finance ministers and central bank governors of Japan and the six other countries held a teleconference and compiled a joint statement.

"Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability," the statement said. It also stated that the coordinated action by the G-7 was made at Japan's request.

It is extremely rare for the G-7 to reveal that a certain action is taken at the request of an individual country.

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1st such move in decade

It was also the first concerted intervention by the G-7 in 10-1/2 years. The last was carried out in September 2000 to curb depreciation of the euro.

Japan also intervened in currency markets by selling yen and buying dollars in September 2010. At that time, however, Japan acted alone; the United States and European countries did not participate.

However, these countries decided to join the latest intervention apparently because their concerns had grown about the current state of the Japanese economy.

There are fears regarding the adverse effects of the earthquake and the subsequent accidents at the Fukushima No. 1 nuclear power plant. If the sharp appreciation of the yen continues for a prolonged period, the business performance of Japan's automobile and other export-based industries could deteriorate, dealing yet another blow to the economy.

Stagnation of the Japanese economy might disrupt currency and stock markets around the world and hinder the global economy just as it is beginning a full-fledged recovery.

The G-7 apparently concluded it was extremely important for the world economy to avert such a scenario and help Japan recover from the earthquake and restore its economy.

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Speculators pushed up yen

The yen's sharp appreciation was triggered by hedge funds and other speculators buying the Japanese currency on the assumption that its value would rise after the earthquake.

Also behind the joint intervention was the fact that the G-7 has been considering tightening regulations on hedge funds after the global financial crisis and could not overlook their speculative buying of the yen.

However, future exchange markets warrant no optimism. Speculators are expected to act as if they are testing currency authorities' determination to battle the yen's excessive appreciation. The government and the Bank of Japan should establish deeper cooperation with the United States and European countries, and should continue intervening in currency markets if necessary.

Although the other members of the G-7 decided this time to intervene in currency markets with Japan, which wants to lower the yen's value drastically, it is still unknown to what level the United States and European countries would allow the yen to fall. We must keep our attention on exchange markets.