G7 Statement Gives Japan A Free Hall Pass?

G7 met on Monday the 11th of February to discuss the increasing tension over the so-called “currency war” that seems to become the main focus of the market, especially after seeing the Japanese yen depreciate 15% from the start of the year.  Here’s the Official G7 Statement to that effect:

G7 STATEMENT ON CURRENCIES: REAFFIRMS COMMITMENT TO MARKET DETERMINED FX

• Disorderly movements have negative implications
• Reiterates will not target exchange rates.
• Will cooperate as appropriate on foreign exchange markets
• Monetary policies will remain focused on domestic objectives

Prior to the release of the official statement, market speculated that G7 may change its statement to reflect the tensions over the ”currency war.”  But out of all of the member of the Group of 7, which are U.S., Japan, Canada, UK, France, Germany, and Italy; only France and (perhaps) Italy were more outspoken on the subject, while U.S., Japan, and UK are currently in the process of depreciating their currencies (or actively “participating” in the currency war), leaving Germany and Canada as the “undecided votes” in this matter.

Last week, Germany rejected a proposal from France to set a medium-term target rate on the Euro by stating that Germany does not feel the Euro is overvalued… which leaves only Canada, and we all know that Canada will not go against U.S. due to the close alliance and economic dependency, especially considering that whatever the U.S. is doing to depreciate the dollar is actually helping the Canadian economy…  It’s no surprise to see that the current G7 Statement language is identical to the previous, or no slap on the wrist for Japan…

Seeing that USDJPY jumped up 30 pips 15 minutes after the G7 Statement, I’m now more convinced that as long as Japanese officials don’t talk about an exchange rate target, such as “100 yen to the dollar”, they can talk all they want without official criticism from the G7, while still achieving their goal of currency devaluation. This opens doors for Japan as they shift their talks on monetary policy instead of exchange rates…

100.00 for USDJPY is coming, so make sure you are shorting the yen on rallies.

Yes, even after G7′s correction expressing concerns on the sudden weakness of the yen, it will continue to weaken…

Thanks,

FUNDAMENTALS

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