# Analysis-G7 fails to reach intervention deal to ease pain of soaring dollar
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-10-17
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: G7 meetings fail to ease concerns over soaring U.S. dollar
Meta Description: Stay informed on the latest developments as G7 countries grapple with increasing U.S. dollar strength and its impact on global markets.
URL: https://financedigest.com/analysis-g7-fails-to-reach-intervention-deal-to-ease-pain-of-soaring-dollarhtml

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By Leika Kihara

WASHINGTON (Reuters) – Japan and other countries facing the fallout from a soaring U.S. [dollar found little comfort from last week’s meetings](https://www.financedigest.com/sterling-steadies-vs-dollar-ahead-of-boe-ecb-meetings.html "Sterling steadies vs dollar ahead of BoE, ECB meetings") of global finance officials, with no sign that joint intervention along the lines of the 1985 “Plaza Accord” was on the horizon.

With a strong push from Japan, finance leaders of the [Group of Seven advanced economies included a phrase in a statement on Wednesday saying](https://www.financedigest.com/saipem-shares-drop-group-says-cannot-explain-why.html "Saipem shares drop, group says cannot explain why") they will closely monitor “recent volatility” in markets.

But the warning, as well as Japanese Finance Minister Shunichi Suzuki’s threat of another yen-buying intervention, failed to prevent the currency from [sliding to fresh 32-year lows against the dollar](https://www.financedigest.com/stocks-and-gold-cheer-u-s-inflation-picture-while-dollar-slides.html "Stocks and gold cheer U.S. inflation picture, while dollar slides") as the week came to a close.

While Suzuki may have found allies grumbling over the fallout from the U.S. central [bank’s aggressive interest rate hike path](https://www.financedigest.com/bank-of-england-officials-split-over-future-path-for-rates.html "Bank of England officials split over future path for rates"), he conceded that no plan for a coordinated intervention was in the works.

Many [countries saw the need](https://www.financedigest.com/5-countries-you-need-to-have-an-offshore-account-in.html "5 Countries You Need To Have An Offshore Account In") for vigilance to the spill-over effect of global monetary tightening, and mentioned currency moves in that context. But there wasn’t any discussion on what coordinated steps could be taken,” Suzuki said in a news conference on Thursday after attending separate meetings of the G7 and [G20 finance](https://www.financedigest.com/g20-watchdog-homes-in-on-decentralised-finance-after-ftx-crash.html "G20 watchdog homes in on decentralised finance after FTX crash") leaders in Washington.

U.S. Treasury Secretary Janet Yellen made clear that Washington had no appetite for concerted action, [saying the dollar’s overall strength was a “natural](https://www.financedigest.com/fund-nature-protection-now-or-face-huge-losses-says-world-bank.html "Fund nature protection now or face huge losses, says World Bank") result of different paces of monetary tightening in the United States and other countries.

“I’ve said on many occasions that I think a market-determined value for the dollar is in America’s interest. And I continue to feel that way,” she said on Tuesday, when asked if she would consider a Plaza Accord 2.0 agreement.

NO YEN SUPPORT

In 1985, a destabilizing surge in the dollar prompted five countries – France, Japan, the United Kingdom, the United States and what was then West Germany – to band together to weaken the U.S. currency and help reduce the U.S. trade deficit. Following the deal, named the Plaza Accord for the famed New York hotel where it was hammered out, the [dollar shed roughly 25% of its value over the ensuing 12 months](https://www.financedigest.com/european-shares-hit-nine-month-high-dollar-wobbles-after-powell-remarks.html "European shares hit nine month high, dollar wobbles after Powell remarks").

With no current U.S. interest in engineering that kind of deal, other countries have to find ways to mitigate the pain stemming from a strong dollar, which has forced some emerging economies to [hike interest rates to defend their currencies even at the cost of cooling economic](https://www.financedigest.com/sp-warns-of-possible-economic-blow-hit-to-japan-inc-from-boj-rate-hike.html "S&P warns of possible economic blow, hit to Japan Inc from BOJ rate hike") growth more than they want.

Emerging Asian nations have seen significant capital outflows this year that are comparable to previous stress episodes, heightening the [need for policymakers to build liquidity buffers and take other steps to prepare for turbulence](https://www.financedigest.com/analysis-global-climate-coalitions-need-safer-harbour-from-antitrust-turbulence.html "Analysis-Global climate coalitions need safer harbour from antitrust turbulence"), said Sanjaya Panth, deputy director for the International Monetary Fund’s Asia and Pacific Department.

The situation for Asian economies is very different from where they were 20 years ago” as countries accumulated foreign reserves that make them more resilient to external shocks, Panth told Reuters on Thursday on the sidelines of the IMF and World [Bank annual meetings](https://www.financedigest.com/dollar-skulks-at-eight-month-low-central-bank-meetings-in-focus.html "Dollar skulks at eight-month low, central bank meetings in focus") in Washington.

At the same time, the [rising debt](https://www.financedigest.com/for-some-european-states-rising-debt-costs-rekindle-2011-crisis-memories.html "For some European states, rising debt costs rekindle 2011 crisis memories") levels, particularly in some economies in the regions, are a concern,” he said. Some [form of market](https://www.financedigest.com/linear-digitized-transition-to-form-the-crux-of-digital-dentistry-market.html "Linear Digitized Transition to form the crux of Digital Dentistry Market") stress cannot be ruled out.

The [Bank of Korea delivered its second-ever 50-basis-point interest rate hike on Wednesday and made](https://www.financedigest.com/fintech-v-the-banks-uneasy-bedfellows-or-a-match-made-in-heaven.html "FinTech v the Banks: Uneasy Bedfellows or a Match Made in Heaven?") clear the won’s 6.5% slide against the dollar in September that drove up import costs played a key role in the decision.

South Korea’s central [bank Governor Rhee Chang-yong said on Saturday he does not sense an interest](https://www.financedigest.com/ecb-raises-interest-rates-again-cuts-bank-subsidies.html "ECB raises interest rates again, cuts bank subsidies") among U.S. officials to stem the dollar’s strength through joint intervention.

But he said some kind of [international cooperation on the dollar may be needed](https://www.financedigest.com/how-to-choose-the-right-service-for-your-international-money-transfer-needs.html "How to choose the right service for your international money transfer needs") “after a certain period.

“I think a too-strong dollar, especially for a substantial period, won’t be good for the Unites States either, and actually I’m thinking about the long-term implication for the trade deficit, and maybe another global imbalance may happen,” he said.

In Japan, the onus is on the [government to deal](https://www.financedigest.com/big-pharma-may-have-to-reveal-government-deals-in-whos-draft-pandemic-rules.html "Big Pharma may have to reveal government deals in WHO’s draft pandemic rules") with a renewed plunge in the yen, caused in part by the policy divergence between the Federal Reserve’s determination to raise U.S. interest [rates and the Bank](https://www.financedigest.com/bank-of-englands-mann-doubles-down-on-backing-for-rate-hikes.html "Bank of England’s Mann doubles down on backing for rate hikes") of Japan’s resolve to keep borrowing costs ultra-low.

At the news conference where Suzuki issued his warning about sharp yen falls, [BOJ Governor](https://www.financedigest.com/yen-trims-gains-as-possible-next-boj-governor-says-current-policy-appropriate.html "Yen trims gains as possible next BOJ governor says current policy appropriate") Haruhiko Kuroda ruled out anew the chance of a rate hike.

The [dollar jumped about 1% to a fresh 32-year high of 148.86 yen](https://www.financedigest.com/yen-sinks-as-rates-outlook-diverges-nz-dollar-tumbles.html "Yen sinks as rates outlook diverges; NZ dollar tumbles") on Friday, testing authorities’ resolve to combat the Japanese currency’s relentless slide. The dollar/yen is now up roughly 2% from levels when Japan intervened on Sept. 22 to buy yen for the first [time since](https://www.financedigest.com/soccer-arsenal-reach-womens-champions-league-semis-for-first-time-since-2013.html "Soccer-Arsenal reach Women’s Champions League semis for first time since 2013") 1998.

Japanese policymakers have said they won’t [seek](https://www.financedigest.com/south-korea-seeks-to-kickstart-talks-to-resolve-historical-feuds-with-japan.html "South Korea seeks to kickstart talks to resolve historical feuds with Japan") to defend a certain yen level, and instead will focus on smoothing volatility.

Masato Kanda, the country’s top currency diplomat, told reporters on Friday that authorities were ready to take “decisive action any [time” if excessively volatile yen moves](https://www.financedigest.com/move-over-tina-its-time-for-tara.html "Move over TINA, it’s time for TARA") continued.

Even moderating abrupt yen moves, however, could be a challenge as Kuroda’s [assurance that the BOJ will keep interest rates in negative territory gives investors](https://www.financedigest.com/apollo-assures-investors-deposit-flight-wont-spill-over-to-athene.html "Apollo assures investors deposit flight won’t spill over to Athene") a green light to continue dumping the currency.

It’s impossible to reverse the yen’s downtrend with solo intervention,” said Daisaku Ueno, chief forex strategist at [Mitsubishi UFJ](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") Morgan Stanley Securities.

Once the yen [falls below 150 to the dollar](https://www.financedigest.com/dollar-falls-to-nine-month-low-as-powell-notes-progress-in-disinflation.html "Dollar falls to nine-month low as Powell notes progress in disinflation"), it’s hard to predict where its depreciation could stop because there’s no technical chart support until around 160,” he said.

(Reporting by Leika Kihara; Additional reporting by Daniel Burns in Washington and Tetsushi Kajimoto in Tokyo; Editing by Paul Simao)


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