Currency coordination is set to be the focus for the financial markets at the forthcoming meeting of finance ministers and central bankers of the Group of 20 major nations in Shanghai on February 26-27. However, hopes are low that any action will result.
Both Japan and Sweden, each with a strong currency and negative interest rates, are likely to press for a response to currency turmoil; Japan is a full member of the 19-country group but Sweden is represented only as a member of the EU, which occupies the 20th G20 seat, NewsMarket reported.
Switzerland, a third country with a strong currency and negative rates, won’t be represented at all.
Such meetings haven’t always ended in failure: the Plaza Accord in 1985 was an agreement by France, West Germany, Japan, the US and the UK to weaken the dollar. However, another such deal is regarded as unlikely.
“We continue to believe that despite the dramatic moves in the yen, the bar to intervention [by the Japanese authorities] is high. Except for the coordinated assistance after the Japanese earthquake/tsunami, there has not been a unilateral intervention for several years,” write the currency strategists at Brown Brothers Harriman.
As for the meeting in China, “recent financial market turmoil has prompted speculation that G20 finance ministers and central bank governors will discuss the merits of closer exchange rate coordination at their gathering in Shanghai. However, there is not even a consensus on what the aims of such a deal would be, so it is difficult to envisage it getting serious consideration,” writes Andrew Kenningham, senior global economist at Capital Economics.
Market Rout
Japanese policymakers on Friday said they would seek a global policy response from G20 nations to world market turbulence, as the country’s central bank governor dismissed suggestions the rout was caused by the bank’s new negative interest rate policy, Reuters reported.
Underscoring Tokyo’s alarm over the relentless drop in stock prices, Prime Minister Shinzo Abe held talks with Kuroda for the first time in nearly five months to discuss global economic and market developments.
“I explained the BOJ’s thinking on quantitative and qualitative easing with negative interest rates and its effects,” Kuroda told reporters after the meeting, adding that Abe made no particular remarks on monetary policy.
Japan’s Nikkei share average fell more than 5% to a fresh 16-month low on Friday, while the yen remained near a 15-month high against the dollar as investors flocked to the safety of the Japanese currency on concerns about the health of European banks and the global economic outlook.
Verbal threats of intervention by Finance Minister Taro Aso failed to knock the yen lower. Yen strength has added to headaches for the BOJ, whose adoption of negative interest rates last month has so far failed to produce a sustained positive stock market impact amid a wider market rout.
