Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Traders Await G-7 Summit Statement




TOKYO -- Currency operators are likely to initially test the dollar downward after the Group of Seven meeting in Tokyo on Saturday, but it is not expected to break below the crucial 100 yen threshold, dealers say.


Operators are focusing on whether the G-7 will say it shares Japan's concern over the yen's rise. But even if the communiqu? is actually in line with expectations or drops any mention of "shared concern," they will try to test the dollar's downside first, dealers said.


Apart from the yen, much attention will be paid to how the G-7 nations evaluate the weakening of the euro since its birth a year ago. Any mention of concern about the euro would induce heavy buying of the single currency in the near term, they said. "The market is expecting to see a communiqu? similar to the one crafted at the previous G-7 meeting [in September]," said Michihisa Tanimoto, deputy general manager of securities investment section at Sumitomo Life Insurance.


In September, the G-7 said it shared Japan's concern about the high yen and vowed to "cooperate as appropriate."


Tanimoto said the market would likely initially try to drive down the dollar if the G-7 statement was in line with expectations, as that would merely match the September statement and would not convince operators to actively buy dollars.


But it was not expected to fall below 100 yen, given wariness over possible intervention by the Bank of Japan.


Many dealers said the BOJ intervention Jan. 4 succeeded up to a point in depressing the market's appetite for yen. "The intervention worked. But the market lacks energy to test the dollar upward. Intervention from above 105 yen or verbal intervention is necessary for that," Tanimoto said.


"The market is convinced that if massive yen-buying emerges in such a way as to drag down Japanese share prices, the BOJ would inevitably intervene to prevent the yen's rally," he said.


Japan's top financial diplomat Haruhiko Kuroda said Tuesday that the yen rate is still inconsistent with fundamentals.


A former vice finance minister for international affairs, Tomomitsu Oba, said he expected the group of leading nations to express concern over the strong yen in the communiqu?.


Oba warned that the yen may rise further if Japan fails to clinch the support of other nations to express such concern.


Dealers believe the absence of a reference to the yen in the G-7 communiqu? could spark massive dollar sales by short-term players, but there is no desperate wish among dealers to test the dollar down sharply.


"The mood is very different from September's G-7 meeting," a senior Japanese city bank dealer said. "The market is not anxious to challenge the BOJ now, if it actually steps in to stop the yen's rally."


The dollar was around 103.50-104.50 yen before September's meeting, and that meeting's communiqu? pushed it up to around 107.50 yen.


At that time there was speculation that U.S. authorities would seek a further credit easing by the BOJ at the G-7 as a condition for cooperating in preventing a rise of the yen.


But downward pressure on the dollar intensified as the BOJ refrained from committing itself to additional easing measures.


The yen was buoyed briefly earlier in the week by growing doubts that the


G-7 would go much beyond September's statement of concern about its strength. Such a view was partly reinforced by U.S. Treasury Secretary Lawrence Summers' comments last Friday that Europe and Japan must achieve faster growth to help the global economy.


On Thursday, Summers urged Japan to concentrate on domestic demand and structural reform to prop up its still fragile economic recovery.