TOKYO, Feb 3 - Japan and Europe share concerns about the dollar's decline, although this does not mean they will be pitted against the United States at this week's Group of Seven meeting, a Japanese Ministry of Finance official said on Tuesday. The Group of Seven finance chiefs, who meet in Florida on Friday and Saturday, agree that excessive currency volatility is undesirable, and it was only within this context that they urged greater flexibility in exchange rates at their previous meeting in September, the senior MOF official told reporters. "What has been going on is a decline in the dollar against all non-dollar currencies. In that sense, Japan and Europe have a common interest," the official told reporters. Asked if Japan and Europe would form a united front to persuade the United States to agree on halting the dollar's decline, he said such a juxtaposition was inappropriate. "This is not about antagonism. Japan, Europe and the United States cooperate as much as they can to address issues that each country may have."
Since a statement after the September G7 meeting in Dubai called for greater exchange rate flexibility -- which Japanese officials say was a reference to currency regimes in China and other developing Asian countries -- the dollar has been plumbing record lows against the euro and three-year lows against the yen. The MOF official said the market was overreacting to what was merely a general, common-sense remark. But he added that whether the G7 would amend the wording in the communique at the meeting in Boca Raton -- if only to address the market's perception -- hinged on how the February 6-7 talks between the finance ministers and central bank chiefs panned out. The official also said the G7 members understood Japan's concern that has led to its heavy foreign exchange intervention over the past year, given the high vulnerability of Japan's economy to exchange rate swings. While dollar-denominated transactions accounted for a large part of cross-border trade in the U.S. and the euro was the main currency for European trade, Japan relied on the dollar and dollar-linked currencies for a lot of its trade, he said. "Although Japan has one of the three main currencies, it is relatively small, especially after the birth of the euro, and the impact from exchange rate fluctuation is large. The need for intervention is high and the other countries understand that."
On the issue of urging China to loosen its grip on the yuan, which is pegged to the dollar, the MOF official said the G7 had already made a point with its Dubai statement and China was preparing to address the issue. "In terms of raising the issue and persuading China to react, I think the aim has been achieved to a certain extent," he said, adding that emerging Asian currencies were unlikely to be a major issue at the Boca Raton meeting.//