G7 countries cannot agree on how to keep the USD value down

After the meeting last week, the financial leaders of the G7 countries still could not find a solution to the USD's continuous appreciation over the past time.

In a joint statement, G7 financial leaders only said they would closely monitor "recent fluctuations" in the market. The above statement did not help the USD increase to slow down. On October 14, the yen still fell to a 32-year low against the dollar.

Although Japanese Finance Minister Shunichi Suzuki may find allies in complaining about the consequences of interest rate hikes by the US Federal Reserve (Fed), he admits the group has no plans to coordinate this. intervention case.

"Many countries see the need to be cautious about the spillover effects from the global wave of policy tightening. However, there has not been any discussion of coordinated action steps to be taken," Mr. Suzuki said. said at a mid-week press conference last week after attending meetings of G7 and G20 financial leaders in Washington.

US Treasury Secretary Janet Yellen has made it clear that Washington has no need for coordinated action. She asserted that the USD appreciation "is a natural result of the pace of fiscal tightening in the US and other countries".

"I have said many times that let the market value the USD. I will continue to adhere to that," she said when asked if she would consider the Plaza Agreement again.

The Japanese Yen recently depreciated strongly against the USD. Photo: Reuters

In 1985, the skyrocketing USD caused 5 countries - France, Japan, UK, US and Germany (then West Germany) to sign the Plaza Agreement to weaken the USD and help the US reduce the trade deficit. The dollar then fell 25% in 12 months.

Now, when the US is not excited about such a deal again, countries will have to find their own ways to mitigate the impact of a strong dollar. This forced emerging economies to raise interest rates to protect their currencies, even though it caused growth to fall more sharply than they wanted.

This year, emerging Asian countries have seen capital outflows on a scale comparable to previous crises, prompting policymakers to build financial buffers and take the necessary steps. prepare for volatility, said Sanjaya Panth, deputy director of the Asia-Pacific division at the International Monetary Fund (IMF).

"The situation with Asian economies is very different from 20 years ago," as countries have accumulated large foreign exchange reserves, enough to help them withstand external shocks, Panth told Reuters. , "However, the increase in debt, especially in some economies in the region, is worrisome."

The Bank of Korea (BOK) last week raised interest rates by 50 basis points (0.5%). They said that the 6.5% depreciation of the won against the USD in September has increased import costs, forcing them to raise interest rates.

BOK Governor Rhee Chang-yong also found that US officials were not enthusiastic about coordinated intervention in the USD. However, he thinks the world still needs some form of coordination at the right time.

"I don't think that the dollar is too strong, especially in the long run, it's not good for the US either. I'm thinking about the long-term impact on the trade deficit. Global imbalances could play out as well. out," he said.

In Japan, the BOJ's maintenance of super-loose monetary policy while the US continuously raised interest rates made the USD continuously appreciate against the yen. Since the BOJ intervened on September 22, the USD price has increased another 2%.

Japanese officials have stated that they will not intervene to bring the exchange rate to a fixed level. Instead, they will only focus on reducing volatility. However, analysts also think that the downtrend of the yen is very difficult to reverse.