France's Lagarde Says G-7 Doesn't Plan Intervention

By Sandrine Rastello

Oct. 27 (Bloomberg) -- French Finance Minister Christine Lagarde said the Group of Seven nations don't plan to intervene to sell the yen, while signaling Japanese authorities may still do so.

``We wished to support this possible intervention of Japanese authorities, knowing this would be about a purely Japanese intervention,'' Lagarde said in an interview with Bloomberg News in Montpellier, France. Asked specifically if the G-7 nations would sell the yen together, she said ``no.''

The comments may encourage investors to continue buying the yen after they ignored the G-7's unscheduled warning today that its surge to the highest in almost 13 years had generated ``excessive volatility.'' They still may run into resistance from the Bank of Japan.

``Lagarde has weakened the force of the G-7's statement and any sense of coordination it was trying to achieve,'' said Chris Turner, head of foreign-exchange strategy at ING Groep NV in London. ``It still suggests the Japanese wanted permission to intervene so it provides some approval for going ahead with unilateral action.''

Avoiding Risk

The global credit crunch is forcing investors to race from risk, prompting them to repay loans they previously took out in Japan to take advantage of the lowest interest rates in the industrialized world. As a result, the yen has climbed 14 percent against the dollar this month and 30 percent versus the euro. The yen climbed 1.5 percent to 92.91 per dollar at 9:16 a.m. in New York, from 94.32 on Oct. 24, when it touched 90.93, the strongest since 1995.

That is also generating volatility in foreign exchange markets with a JPMorgan Chase & Co. index showing the major currencies whipsawing the most today in at least 16 years.

``The yen has over the past 48 hours seen brutal trading that reflects a great volatility that's linked to current market moves,'' Lagarde said in the interview.

Even without the support of counterparts, Japanese authorities may still act alone as they last did in March 2004, when they sold the yen at 103.52 per dollar. Japan's Nikkei 225 Stock Average slid 6.4 percent today to a 26-year low as the soaring yen eroded earnings of exporters such as Canon Inc.

Vice Finance Minister Kazuyuki Sugimoto said today that the government was prepared to act ``quickly'' in the currency market.

Coordinated Action

``The Bank of Japan is best placed to intervene in the yen,'' said Robert Minikin, currency strategist at Standard Chartered in London. ``Nevertheless, coordinated intervention would give a strong signal to the market and help stabilize foreign exchange markets as a whole.''

The G-7 nations haven't intervened together in currency markets since September 2000 when they sought to buoy the euro after it fell as low as 82.30 U.S. cents. A study published this month by European Central Bank economist Marcel Fratzscher found the G-7's currency statements since 1975 proved most effective when followed by action such as the 1985 Plaza Accord to weaken the dollar and the Louvre Accord of two years later to boost it.

Eisuke Sakakibara, who was the Finance Ministry's top currency official from 1997 to 1999, said prior to Lagarde's interview that the statement may have been all Japan was able to secure from its G-7 colleagues. The U.S. is wary of selling dollars as it relies on foreign capital to support its own markets, while intervening would also undermine the G-7's five- year lobbying of China to stop managing its currency, economists said.

``Issuing such a statement is a sign of failure to intervene,'' said Sakakibara said. ``The Japanese government may have consulted with their counterparts in the EU and the U.S. and they couldn't persuade them to intervene.''

To contact the reporter on this story: Sandrine Rastello in Montpellier, France, at srastello@bloomberg.net