Group of Seven roils currency markets with split on yen concerns

Group of Seven policy makers roiled the currency markets they sought to calm amid conflicting messages on how much of an economic threat is posed by the weakening yen.

The yen whipsawed as the G-7 appeared at first to signal joint acceptance of the Japanese currency’s recent decline, only to see its members offer contradictory interpretations of the group’s stance. One G-7 official said there is concern about excessive moves in the yen, while the U.K. said the group wasn’t singling out an individual country or exchange rate.

The confusion will keep the spotlight on the threat of a so-called international currency war and Japan’s push for monetary stimulus when finance ministers from the Group of 20 gather this weekend in Moscow.

“The world wants a clear, coherent message from the leaders of the developed world,” said Mike Moran, senior currency strategist at Standard Chartered Plc in New York. “The G-20 is now going to be the key focus. Clearly the onus is on Japan.”

The G-7 broke into the European trading morning with its first statement on exchange rates since September 2011, in which it pledged to keep economic policies directed at domestic needs and disavowed targeting currencies.

The yen pared gains against the dollar as investors concluded the statement meant the G-7 accepts a cheaper yen so long as it is only a by-product of Prime Minister Shinzo Abe’s two-month effort to revive his economy through easier monetary policy.

Aso’s Argument

That message was underscored by Japanese Finance Minister Taro Aso’s argument that the G-7 has acknowledged Japan isn’t driving a devaluation and that its monetary policy is aimed at ending 15 years of deflation.

“Each nation understands that Japan’s policies to tackle deflation are not aimed at influencing foreign exchange rates,” Aso told reporters in Tokyo. “This was discussed by everyone.”

This position was then challenged when an official from a G-7 nation issued a clarification saying investors had misread the statement and that the G-7 was concerned about excessive moves in the yen and Japan’s practice of giving guidance on its value.

The yen jumped on the rebuttal before falling anew as an official from the U.K., which negotiated the statement as this year’s chair of the G-7, said it wasn’t directed at a particular economy or currency.

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