–Retransmitting Story Headlined 20:01 ET Thursday

By Steven K. Beckner

MNI – In a display of its continued relevance and determination to
collaborate in times of crisis, the Group of Seven launched a joint
foreign exchange intervention campaign of unknown dimensions Thursday
night.

With speculation about intervention rampant, the G7 did not
disappoint anxious global markets, which have been thrown into tumult
since a major earthquake and tsunami struck Japan late last week,
causing massive devastation and triggering a nuclear crisis.

For the first time in 11 years, U.S. Treasury Secretary Timothy
Geithner, Federal Reserve Chairman and their G7 counterparts agreed, at
Japan’s request, to join that country Friday “in concerted intervention”
in foreign exchange markets to halt or reverse the yen’s rise.

Suggesting that the intervention could well be open-ended, they
pledged to monitor currency movements and “cooperate as appropriate” to
combat what they call “excess volatility and disorderly movements in
exchange rates.”

One ironic result of Japan’s natural disaster has been to drive up
the value of the yen to record levels, largely because dollars are being
converted into yen in anticipation of a major reconstruction effort. The
dollar has fallen to the point where it threatened to further aggravate
the already considerable problems of Japan’s export-oriented economy.

The G7 action comes after the yen appreciated to a record 76.25
per dollar early Thursday on speculation that Japanese investors and
others were, or would be, converting dollars into yen for repatriation
to earthquake-stricken Japan. The yen began the year around 82 per
dollar and traded above 83 per dollar as recently as Feb. 18.

In a terse statement the G7 finance ministers and central bank
governors announced that they had “discussed the recent dramatic events
in Japan and were briefed by our Japanese colleagues on the current
situation and the economic and financial response put in place by the
authorities.”

“We express our solidarity with the Japanese people in these
difficult times, our readiness to provide any needed cooperation and our
confidence in the resilience of the Japanese economy and financial
sector,” they said, before turning to the decisive joint policy
declaration.

“In response to recent movements in the exchange rate of the yen
associated with the tragic events in Japan, and at the request of the
Japanese authorities, the authorities of the United States, the United
Kingdom, Canada and the European Central Bank will join with Japan, on
March 18, 2011, in concerted intervention in exchange markets,” they
asserted.

“As we have long stated, excess volatility and disorderly movements
in exchange rates have adverse implications for economic and financial
stability,” they added. “We will monitor exchange markets closely and
will cooperate as appropriate.”

The unusual tactics show the continued viability of the G7, which
has increasingly given way to the more inclusive G-20 of late.

Although the G7 and the G-20 have made a regular practice of
commenting on the Chinese yuan in recent years, it has been rare for
them to comment on the Japanese yen or any other major industrial
nation’s currency.

The last time the G7 made specific mention of the Japanese yen in
a statement was on October 27, 2008, following another period of rapid
yen appreciation.

After a late Sunday night conclave they declared, “We reaffirm our
shared interest in a strong and stable international financial system.
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
cooperate as appropriate.”

That statement gave rise to speculation about joint intervention to
weaken the yen, which had appreciated from more than 110 yen per dollar
in August of that year to 92 per dollar at the time of the Oct. 27
meeting.

But joint intervention never occurred even though the yen moved to
below 90 yen per dollar in December 2008.

Previous to October 2008, the last mention of the yen in a G-7
statement had come on Jan. 22, 2000 during another period of rapid yen
strengthening. The G7 at that time “welcomed the reaffirmation by the
Japanese monetary authorities of their intention to conduct policies
appropriately in view of their concern, which we share, about the
potential impact of yen appreciation for the Japanese economy and the
world economy.”

But no coordinated intervention ensued to weaken the yen against
other currencies.

There was coordinated intervention later that year — in September
2000. But the focus of that joint G-7 effort was not on the yen, but on
supporting a weak euro, primarily against the dollar.

** Market News International **

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