The G7 on Tuesday attempted to cool growing tensions over potential destabilizing rounds of currency devaluations sparked by weakness in the Japanese yen in a statement that may have raised confusion among markets.
The group of leading economies, comprised of US, Japan, Germany, France, Italy, Canada and the UK, reaffirmed their commitment to let market forces determine exchange rates, and said central bank policy will be focused solely on domestic objectives, Wall Street Journal reports.
“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,” G7 finance minister and central bank governors said in the statement, published by the UK treasury.
Investors initially saw the statement as a nod to Japan’s efforts to reflate its economy with an expanded bond-buying program. But a report from Reuters, citing an unnamed G7 official, said markets were left confused.
“The G7 statement signaled concern about excess moves in the yen,” the official said. “The G7 is concerned about unilateral guidance on the yen.”
That sent the yen surging against the dollar from 94.28 yen to a low 92.96. By late afternoon in the US, the yen was trading at about 93.5, according to Reuters.
The statement from G7 follows comments in recent months from Japanese Prime Minister Shinzo Abe and his aides suggesting they were targeting a specific exchange rate to the advantage of Japanese exporters.
“There have been opinions that our measures against a deflation-induced economic downturn are aimed at moving exchange rates,” Japanese finance minister Taro Aso told reporters. “But that is not the case, and the rest of the nations have properly, correctly understood this. In that sense, the latest statement is meaningful”.