TOKYO (AFP) — The Group of Seven major economies on Monday vowed to work together to protect the crisis-hit financial system and fired a warning shot to currency traders over the surging yen.
But their efforts did little to stem the market turmoil. Asian stocks suffered fresh losses, with Japan's Nikkei plunging to a 26-year low, while the yen resumed its ascent towards a 13-year high against the dollar.
Unless the G7 takes "drastic steps" such as joint market intervention to sell the yen, the currency is unlikely to come down, said Kenichi Yumoto, vice head of forex trading at Societe Generale in Tokyo.
In a brief joint statement, the G7 finance ministers and central bankers reaffirmed their "shared interest in a strong and stable international financial system."
They voiced concern about "excessive volatility" in the yen and its "possible adverse implications for economic and financial stability."
"We continue to monitor markets closely and cooperate as appropriate," said the statement, which mentioned no other currencies and was issued while US and European markets were shut.
Dealers said it appeared to be a Japanese initiative that reflected growing concern here that the soaring yen will push Asia's economy into a deep downturn.
The surprise statement from the G7, which comprises Britain, Canada, France, Germany, Italy, Japan and the United States, came after the yen hit a 13-year high against the dollar and a six-year peak versus the euro last week.
The yen often rises at times of financial turmoil as dealers unwind risky bets funded with cheap Japanese credit.
After a fleeting rebound following the G7 remarks, the dollar fell back to 93.46 yen in late Tokyo trade, down from 94.24 in New York Friday.
"The yen shrugged off words of concern by G7 central banks," said analysts at RBS Securities.
Japan's Finance Minister Shoichi Nakagawa earlier warned that "excessive" volatility in the yen exchange rate was destabilising Asia's biggest economy.
"I will continue to watch currency markets with great interest," he said.
The comments sparked fresh speculation that Tokyo may intervene in the market for the first time since March 2004 to curb the yen's rapid ascent, which is taking a heavy toll on exporters.
Analysts believe, however, that the US and the eurozone authorities are unlikely to support joint intervention yet to sell the yen, whose strength is taking some pressure off US and eurozone exporters.
"We suspect that the MOF (ministry of finance) is unlikely to physically intervene immediately," Barclays Capital analysts wrote in a note.
"However, we think that there is a risk of the MOF unilaterally intervening between 80 and 90 if the dollar/yen keeps declining," they added.
The strength of the yen has battered the Japanese stock market because of concerns about the impact on exports.
"The impact that the higher yen would have on Japan's real economy is concerning, so the government needs to implement appropriate measures," Chief Cabinet Secretary Takeo Kawamura told a news conference.
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