RGE - G-7 punts on the yen, as expected
リンク: RGE - G-7 punts on the yen, as expected.
Brad Setser | Feb 10, 2007The G-7 punted on the yen, more or less. They didn't highlight yen weakness in their closely watched paragraph on exchange rates. Though, as Morgan Stanley points out, the language on Japan ("Japan’s recovery is on track and is expected to continue. We are confident that the implications of these developments will be recognized by market participants") presumably was meant to send something of a signal.
I wonder if the markets will pick up on the "recovery is on track" language, or will take the absence of stronger language on the yen as an "all clear" sign to make even bigger bets on yen weakness.
The G-7 did talk explicitly about the RMB. That isn't a surprise, but Chinese presumably still don't like being singled out. China isn't a part of the G-7, and its currency was called out. Japan is a part of the G-7, and its currency wasn't mentioned. Yet by some measures the yen is now as undervalued as the RMB. That sort of thing rankles the Chinese -- even though it would be a far bigger deal for the G-7 to talk about the yen than the yuan precisely because Japan is a part of the G-7.
Intellectually, though, the language on the renminbi makes sense. The G-7 called for an appreciation of the RMB in real effective terms.
In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur
That
