THE GROUP of Seven (G7) leading economies yesterday issued a joint statement indicating that it was ready to step in to help ease the yen's advance, which is threatening global financial stability.
But the unscheduled statement failed to stop the yen hitting a 13-year high against the dollar, further threatening Japanese exports. The yen was trading at 92.80 to the dollar by late afternoon in Tokyo while Japan's Nikkei 225 index ended the session down 6.4 per cent at its lowest close since 1982 as exporters fell on the stronger yen.
Shoichi Nakagawa, Japan's finance minister, said the G7 was worried about volatility in the yen.
"We reaffirm our shared interest in a strong and stable international financial system," the G7 statement said. "We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability. We continue to monitor markets closely, and co-operate as appropriate."
The yen barely paused for breath after the statement as investors bet Japan's G7 partners had little appetite for a fight with markets as they grappled with the worst financial turmoil in 80 years. This view gained ground after French finance minister Christine Lagarde said the G7 was not planning to intervene to sell the yen.
The G7 statement came as the Japanese government said it would unveil emergency measures to stabilise the financial system after Tokyo shares plunged to 26-year lows, fuelling fears of further damage to Japan's faltering economy. Taro Aso, Japan's prime minister, instructed his ministers to come up as soon as possible with steps to shore up the sinking stock market, saying the market's freefall and yen's fast-paced appreciation were a "huge concern" in terms of their impact on the real economy.
As the global financial turmoil ensnared the Japanese banks, Mitsubishi UFJ unveiled plans to raise up to $10.5 billion in new capital to bolster its balance sheet. The capital raising by Japan's largest banking group comes as tumbling stock prices and a deteriorating economic outlook threaten to undermine its financial health.
Elsewhere on the currency markets, the euro stayed lower against the dollar and the yen after a survey by the IFO institute showed business confidence in Germany, the largest of the 15 economies sharing the currency, has declined to the lowest level in more than five years.
The pound slid after an industry report showed UK house prices have slumped. "It's a combination of unwinding carry positions and money going home to Japan and the US," said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets.
"It's not an environment where one should be looking for return on capital, but for return of capital."
The Reserve Bank of Australia intervened in the currency market, buying Australian dollars for US dollars in Europe. - (Financial Times service/Bloomberg)
