By Leika Kihara
WASHINGTON (Reuters) – Japan and other countries facing disaster as a soaring U.S. dollar found no solace from last week’s meetings of global financial officials. There are no signs that joint intervention along the lines of the 1985 “Plaza Agreement” is approaching.
With a strong boost from Japan, the financial leaders of the Group of Seven advanced economies included a phrase in a statement on Wednesday saying they would closely monitor “recent volatility.” ” on the market.
But the warning, as well as Japanese Finance Minister Shunichi Suzuki’s threat of another yen-buying intervention, failed to stop the currency from sliding to a 32-year low against the dollar as This week is over.
Although Suzuki can see allies complaining about the consequences of the US central bank’s aggressive interest rate hike, he acknowledges that no coordinated intervention plan is in place.
Suzuki told a news conference on Thursday after attending separate meetings of G7 and G20 financial leaders in Washington.
US Treasury Secretary Janet Yellen made it clear that Washington did not want concerted action, saying the overall strength of the dollar was “a natural result of different rates of monetary tightening in the US and other countries.”
“I’ve said many times that I think the market-determined value of the dollar is in America’s interest. And I continue to feel that way,” she said Tuesday, when asked if Is she considering a Plaza Accord 2.0 deal?
NO SUPPORT YATES
In 1985, the rise of dollar instability prompted five countries – France, Japan, the United Kingdom, the United States, and later West Germany – to band together to weaken the US currency. United States and help reduce the US trade deficit. After the deal, dubbed the Plaza Accord for the famous New York hotel where it was stamped out, the dollar lost about 25% of its value over the next 12 months.
Given that the US is no longer interested in making that kind of deal, other countries must find ways to mitigate the pain stemming from a strong dollar, which has forced some emerging economies to raise interest rates. interest rates to protect their currencies even at the expense of cooling economic growth. more than they want.
Sanjaya Panth, deputy director for Asia and the Pacific at the International Monetary Fund, said emerging Asian nations have seen significant capital outflows this year, equivalent to previous stress. Room.
“The situation of Asian economies is very different from 20 years ago” as countries accumulate foreign exchange reserves that make them more resilient to external shocks, Panth told Reuters. Thursday on the sidelines of the annual meeting of the IMF and World Bank in Washington.
“At the same time, rising debt levels, especially in some economies in the region, are a concern,” he said. “Some form of market stress cannot be ruled out.”
The Bank of Korea made a second 50-basis-point interest rate hike on Wednesday and clarified that the won’s 6.5% slide against the dollar in September led to an increase in import costs. an important role in this decision.
South Korea’s central bank governor Rhee Chang-yong said Saturday that he does not feel the interest of US officials in stemming the dollar’s strength through joint intervention.
But he said some kind of international cooperation on the dollar may be needed “after a certain time.”
“I think a dollar that’s too strong, especially over a significant period, is not good for the Consolidated Countries either, and actually I’m thinking about the long-term implications for trade deficits, and there could be another global imbalance,” he said.
In Japan, the government is stepping in to deal with a fresh decline in the yen, partly due to the policy divergence between the determination of the US Federal Reserve to raise interest rates and the determination of the Bank of China. central bank in keeping borrowing costs extremely low.
At the press conference where Suzuki warned of a sharp drop in the yen, BOJ Governor Haruhiko Kuroda ruled out another rate hike.
The dollar rose about 1% to a fresh 32-year high of 148.86 yen on Friday, testing the resolve of authorities in combating the Japanese currency’s relentless slide. The dollar/yen is now up about 2% from where it was when Japan intervened on September 22 to buy the yen for the first time since 1998.
Japanese policymakers said they would not seek to defend a certain yen, and would instead focus on softening volatility.
Masato Kanda, the country’s top currency diplomat, told reporters on Friday that authorities were ready to take “decisive action at any time” if the excessively volatile yen continued. .
However, even correcting sudden yen moves can be challenging as Kuroda’s assurances that the BOJ will keep interest rates in the negative zone gives investors the green light to continue selling. price of this currency.
“It’s not possible to reverse the yen’s downtrend by intervening alone,” said Daisaku Ueno, chief forex strategist at Mitsubishi UFJ (NYSE:). Morgan Stanley (NYSE: Stocks).
“Once the yen falls below 150 against the dollar, it is difficult to predict where its decline might stop as there is no technical chart support until around 160,” he said.