The Group of Seven industrial countries Monday expressed its concern over the yen's recent upward movement. In an emergency statement, the finance ministers of the G7 said they were worried about the Japanese currency's rise and its impact on the global economy as well as financial system.
Last week, the yen jumped to multi-year highs against the euro and the dollar, with stock prices continuing their downtrend owing to loss of investor faith brought about by fears about a global recession. On Friday, the U.S. dollar plunged to a 13-year low against the yen, while the euro fell to a 6-year low against the Japanese currency.
Although the yen pulled back slighty in early Asian traing, it has rebounded since then and is currently trading at 93.36 yen. The yen's strength reflects the risk aversion of traders, who are unwinding their carry trade position on a large scale. Unwinding of carry trades boosts the demand for yen to repay yen-denominated loans borrowed to invest in risky assets in other countries that generate higher returns.
Japan's Nikkei index hit a 26-year low early morning shortly after the open, plunging below 7,500, a level not seen since 1982. Shares of Japan's biggest banks also tumbled, amid fears they would have to raise new capital to replenish losses.
The statement from G7 said, "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."
Meeting on the sidelines of the World Bank and International Monetary Fund annual conferences in Washington, the ministers did not mentionm any action to stem the rise in the yen.
Meanwhile, Japanese Finance Minister Shoichi Nakagawa said the statement was issued after Tokyo requested for the same. The rise in yen could pose a threat to exports from the country.
In its monthly economic report for October released last week, the Japanese Cabinet Office said the economy has weakened further. The world's second-largest economy said domestic growth has weakened further and that industrial production is falling. Corporate profits continued to decrease and business investment is in a weak tone, the report added.
The Bank of Japan said in its regional economic report for October that economic growth had been sluggish in each of the nine regions.
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