Group of 7 Meeting in Tokyo Tackles Yen’s Rise
Finance officials of the Group of 7 industrialized nations said Monday that they were “concerned” about the yen’s exchange rate, a rare statement issued as the Japanese currency soars and stock markets sink. The statement could indicated that policy makers might take more dramatic steps to halt the yen’s rise to stabilize global financial markets.
The statement from the G-7 officials and a surprise rate cut in South Korea highlighted the depth of concern over the latest wave of financial turmoil, which has wreaked havoc not only in the debt and stock markets, but also in the currency markets. In the last few months, the yen has appreciated dramatically, while the euro and won have dived.
The statement, which said the G-7 would “monitor the markets closely and cooperate as appropriate,” came as countries in Asia, spooked by the relentless sell-offs in the stock markets, scrambled to support their economies.Japan’s prime minister, Taro Aso, said the government would expand a plan that gives banks access to public funds and would strengthen regulation on the short-selling of shares. In South Korea, the central bank staged its deepest-ever interest rate cut during an emergency session in Seoul, while the Australian central bank intervened in the currency markets for a second day.
In Japan, the world’s second-biggest economy after the United States, the yen’s rise has hit the key export industry, as corporate giants like Sony are seeing their goods become more expensive in the crucial markets in Europe and the United States.
Like Japan, South Korea is heavily dependent on exports, and fears that consumers in export markets like the United States will drastically cut spending as the economy slows have hit South Korea especially hard.
Adding to concerns about South Korea, is the fact that local banks, hit by the rise in borrowing costs for the U.S. dollar, are now struggling to pay billions of dollars in short-term loans coming due.
The government of President Lee Myung Bak of South Korea has struggled, but with limited effect, to contain what analysts have termed a “crisis of trust” for Asia’s fourth-largest economy. It has stressed that South Korea has $240 billion of currency reserves, more than enough to pay all the country’s short-term foreign debts, and that its companies and banks are more competitive than 10 years ago.