US Treasury Secretary Janet Yellen acknowledged the concerns of Japan and South Korea over sharp declines in their currencies during a trilateral meeting of finance chiefs that may offer Tokyo and Seoul more scope to defend the yen and the won.
Yellen, Japanese Finance Minister Shunichi Suzuki and South Korean Finance Minister Choi Sang-mok said in a statement that they will “continue to consult closely on foreign exchange market developments in line with our existing G-20 commitments, while acknowledging serious concerns of Japan and the Republic of Korea about the recent sharp depreciation of the Japanese yen and the Korean won.”
Reading between the lines, the statement suggests the US will tolerate intervention in the market, according to currency watchers in Tokyo. Japanese and Korean officials have been ramping up warnings, with the yen down about 9% against the dollar this year and the won roughly 7% weaker.
“The US has effectively given the nod on intervention,” said Keiichi Iguchi, a senior strategist at Resona Holdings Inc. in Tokyo. “This has increased speculation that a coordinated intervention is a possibility.”
Suggesting further tacit approval of possible market action by Japan, the Group of Seven nations released a statement reaffirming their commitment to existing agreements on currency policy. Like the G-20 agreements, the G-7 allows some wiggle room for stepping into markets in response to excessive moves in exchange rates.
Yujiro Goto, head of currency strategy at Nomura Securities Co., said it may now “be easier to gain understanding for intervention.” Still, he added that intervention alone will not change the trend in the market if fundamentals do not change
The yen strengthened 0.1% to 154.26 per dollar at 1:22 p.m. in Tokyo on Thursday, having backed away from the 155 level where many traders see a heightened risk of intervention after the three-way statement. The won strengthened 0.9% to 1374.15 against the US currency.
The dollar has strengthened against major counterparts this year as the US economy shows surprising resilience in the face of sticky inflation and the highest interest rates in years. The strength of the economy and prices has reduced prospects for Federal Reserve interest-rate cuts, a factor feeding into greenback strength.
Past agreements among members of the G-20 emerging and advanced economies emphasize the principle of allowing markets to determine exchange rates, while leaving the door open to action against excess market volatility.
Following the debut meeting of the trio on Wednesday in Washington, which happened on the sidelines of the International Monetary Fund-World Bank spring gathering, Suzuki and Masato Kanda, Japan’s top currency official, touted the agreement regarding currencies while repeating their previous talking points on the yen’s weakness.
“We would like to continue to consult closely with them regarding how the foreign exchange market is developing,” Suzuki said to reporters. “As I have always said, I do not comment on specific measures to be taken, because they may have an unforeseen impact on the market.”
Suzuki said he though his counterparts listened well when he explained Japan’s stance remains that exchange rates should move stably in line with economic fundamentals and that it will deal with any excessive moves appropriately.
Reaching Wednesday’s agreement on language about currency weakness itself was an achievement, as that hasn’t been done in recent years, Kanda said.
“I hope you will read the statement as it is,” Kanda said. “It is serious concerns rather than ordinary concerns.”
Following the release of the G-7 statement, Kanda also indicated that the reconfirmation of currency commitments had taken place at Japan’s recommendation.
Before Wednesday’s meeting, both South Korean and Japanese officials had aired concerns about their currencies slumping to multi-year lows against the dollar this week. Choi and Suzuki expressed “serious concerns” over the recent weakening of their currencies and warned of taking appropriate steps to counter any drastic volatility, South Korea’s government said in a statement after a bilateral meeting between the two.
The three also on Wednesday confirmed their commitment to coordinate on sanctions against Russia and North Korea and collectively deal with issues regarding supply-chain vulnerabilities, economic coercion and overcapacity.
Pacific Islands
In addition, they reaffirmed the importance of Pacific Island countries, where the US and China have been competing to build influence since the Solomon Islands in 2022 signed a security accord with Beijing — a first for the region — raising concerns about a possible Chinese military base in the neighborhood.
The first trilateral gathering of financial chiefs follows the landmark trilateral summit in August between US president Joe Biden, Japanese Prime Minister Fumio Kishida and South Korean President Yoon Suk Yeol at the Camp David presidential retreat.
The three nations have been strengthening defense and economic security cooperation, trying to de-risk supply chains from exposure to China and teaming up on key technologies like semiconductors and artificial intelligence.
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