Group of Seven calls for halt to dollar's rise

Group of Seven calls for halt to dollar's rise

BERLIN (AFP): The Group of Seven leading industrial nations came down hard Saturday against further rise in the U.S. dollar and hinted they would intervene on currency markets if the volatility continued, in a text released by the seven delegations.

"We reaffirmed our views that exchange rates should reflect economic fundamentals and that excess volatility is undesirable," said the statement, which was read out verbatim by U.S. Treasury Secretary Robert Rubin to reporters.

"We agreed to monitor developments in exchange markets and to cooperate as appropriate," said the statement, also cited by the other ministers at their separate press conferences.

The finance ministers and central bank governors made clear that they viewed present exchange rates as correct, fixing a previous imbalance.

"We believe that major misalignments in exchange markets noted in our April 1995 communique have been corrected," the statement said.

German Finance Minister Theo Waigel said "the orderly reversal we wanted has taken place." This is the reversal that the G7, which groups Britain, Canada, France, Germany, Italy, Japan and the United States, had called for in April 1995, when a weak dollar was helping U.S. exports but hurting European sales in the American market.

French Finance Minister Jean Arthuis said: "We have reached an unambiguous consensus today."

It was the first time in several years that the G7 finance ministers have issued such a formal statement, clearly designed to show the markets that the seven leading industrialized nations are determined and united.

Japanese Finance Minister Hiroshi Mitsuzuka also told reporters: "The strong yen has been corrected."

"I hope this will lead to a stable exchange market," he added.

He noted the exchange swings were hurting Japan, saying the fall in the yen was "beginning to show up in rising import prices."

Mitsuzuka said there was now "a higher probability of a sustained recovery" in Japan -- a recovery the Japanese have said could be destroyed by too weak a yen.

He said Japan has "abandoned the policy of growth through external demand" in favor of a policy of domestic demand-led growth."

Financial experts have said that Washington would help Japan on stabilizing exchange rates only if Tokyo took moves that would lead towards opening Japan up to imports.

Rubin said: "The Japanese continue to face an important challenge in maintaining supportive macro-economic policy stands necessary to promote a strong domestic demand-led recovery, implementing structural reforms, open the Japanese economy and policies to strengthen the banking system."

He added: "I think we all are going to have to watch very carefully as the Japanese government works their way through these very difficult issues and they clearly have difficult issues to deal with.

The dollar was worth 1.6625 marks in late trading in New York Friday, having risen over 20 percent since April 1995 and 10 percent over the past two months.

But the stronger dollar worries Japan since the yen has fallen very sharply, to a four-year low at 123.2 yen to the dollar Friday and Tokyo's problem is getting Japanese to purchase more at home. A weak yen makes imports more expensive.

Eddie George, governor of the Bank of England, explained that the G7 does not have precise targets for exchange rates. Referring to the final statement, he said: "These are broad brush judgements. The approach in the G7 is not to be precise" about rates.

Hashimoto -- Page 9