The yen has soared to its highest level in nearly three years against the dollar after ministers from the world's seven largest economies indicated that Japan should stop trying to weaken the currency. The dollar fell to 111.37 yen this morning, down from 114.01 on Friday. The yen's sharp moves have benefited the euro; driven by its fall against the yen, the dollar has extended its losses against the single currency, allowing it to push to a two month high at USD1.1465. The G7 ministers did not mention specific currencies in their statement, but emphasised "that more flexibility in exchange rates is desirable for major countries" to promote smooth adjustments in the international financial system.
The move has been interpreted as targeting China and Japan. The Bank of Japan has intervened on numerous occasions in recent months to halt the yen's appreciation, which it fears will hurt exports and damage the economy's chances of recovery. "Although Japan reaffirmed this morning that it will continue its interventionist policy, its ability to aggressively act is seen as weakened following the statement," said Geraldine Concagh, senior economist at AIB Treasury.//www.fxcentre.com