Last week’s meetings of global financial authorities provided no relief to Japan and other nations facing calamity due to a surging US currency. There are no hints of a collaborative involvement along the lines of the 1985 “Plaza Agreement.”
With a significant push from Japan, the Group of Seven advanced nations’ finance chiefs inserted language in a statement on Wednesday indicating they would closely watch “recent volatility” on the market.
However, the warning, along with Japanese Finance Minister Shunichi Suzuki’s promise of another yen-buying intervention, could not prevent the currency from falling to a 32-year low versus the dollar as the week came to a close.
Although Suzuki sees supporters screaming about the repercussions of the Fed’s aggressive interest rate rise, he admits that no concerted intervention strategy is in place.
Suzuki made the remarks during a press conference on Thursday following separate meetings of G7 and G20 finance executives in Washington.
US Treasury Secretary Janet Yellen stated unequivocally that Washington does not seek coordinated action, claiming that the dollar’s general strength is “a natural byproduct of varying rates of monetary tightening in the US and other nations.”
“I’ve mentioned many times that I believe the dollar’s market value is in America’s best interests.” And I still feel that way,” she said Tuesday when asked if she is considering a Plaza Accord 2.0 pact.
The growth of dollar volatility in 1985 caused five nations – France, Japan, the United Kingdom, the United States, and later West Germany – to join forces to devalue the US currency. The United States contributes to the reduction of the US trade imbalance.
Following the agreement, called the Plaza Accord after the famed New York hotel where it was signed, the dollar lost nearly 25% of its value during the next year.
Given that the United States is no longer interested in such an agreement, other nations must find measures to alleviate the pain caused by a strong dollar, which has prompted several emerging economies to boost interest rates. Interest rates are being raised to defend national currencies, even if it means slowing economic development. more than they desire
According to Sanjaya Panth, the International Monetary Fund’s deputy director for Asia and the Pacific, developing Asian countries have suffered considerable capital outflows this year, equal to prior strains. Room.
“The status of Asian economies is substantially different from 20 years ago,” Panth Said, as countries stockpile foreign exchange reserves that make them more robust to external shocks. Thursday on the margins of the IMF and World Bank’s annual conference in Washington.
“At the same time, growing debt levels, particularly in certain of the region’s economies, are a concern,” he said. “Some type of market stress is unavoidable.”
On Wednesday, the Bank of Korea raised interest rates by 50 basis points and highlighted that the won’s 6.5% drop versus the dollar in September increased import expenses.
South Korea’s central bank governor, Rhee Chang-Yong, stated on Saturday that he does not believe US authorities are interested in taming the dollar’s strength by joint action.
However, he stated that some form of international collaboration on the dollar may be required “after a certain period.”
“I think a high dollar, especially over a long period of time, is not good for the Consolidated Countries, and I’m thinking about the long-term ramifications for trade imbalances, and there may be another global imbalance,” he added.
In Japan, the government is stepping in to cope with a new collapse in the yen, which is partially due to a policy divergence between the US Federal Reserve’s drive to raise interest rates and the Bank of China’s commitment to maintaining borrowing costs extremely low.
BOJ Governor Haruhiko Kuroda ruled out another rate rise during a news conference where Suzuki warned of a severe collapse in the currency.
On Friday, the dollar surged almost 1% to a new 32-year high of 148.86 yen, putting the authorities’ determination to oppose the Japanese currency’s steady slump to the test. The dollar/yen is presently around 2% higher than it was when Japan intervened to buy the yen for the first time since 1998 on September 22.
Japanese authorities have stated that they will not strive to protect a certain yen and will instead focus on reducing volatility.
Masato Kanda, Japan’s top currency ambassador, warned reporters on Friday that officials were prepared to take “decisive measures at any time” if the yen remained extremely volatile.
Even correcting quick yen swings can be difficult, as Kuroda’s guarantees that the BOJ will keep interest rates in the negative zone offer investors permission to continue selling.
“It is not viable to restore the yen’s downturn only through intervention,” Daisaku Ueno, chief currency strategist at Mitsubishi UFJ said.
“Once the yen goes below 150 versus the dollar, it will be difficult to anticipate where it will stop falling because there is no technical chart support until approximately 160,” he added.
