Europe and Japan in effort to shore up yen

Finance ministers from Europe and Japan have launched a co-ordinated effort to shore up the yen, voicing concern over the recent sharp decline in a move designed to stop the Japanese currency falling any further.

After a meeting of ministers and central bank governors of the G7 in Singapore at the weekend, Sadakazu Tanigaki, the Japanese finance minister said the yen’s value should reflect Japan’s economy, which is recovering, and added that the recent drop in yen had been a “little rough”.

Jean Claude Trichet, president of the European Central Bank, said: “We noted that [Japan] had exited its zero interest rate policy, that its recovery is now broad-based. We agreed that the yen will reflect these developments.”

The Financial Times understands that the comments were a co-ordinated move, reflecting concerns that the yen has fallen to record lows against the euro recently having dropped by more than 6 per cent this year and over 40 per cent since 2000.

The G7 also maintained its pressure on China to revalue the renmimbi, repeating its language of April, calling for “greater exchange rate flexibility” in China, but the strong language did not persuade Chinese officials to signal an imminent move on the currency.

The G7 meeting presented a generally upbeat assessment of the prospects for advanced economies, noting that “in our economies, performance remains strong amid moderating growth in the United States”. But at the wider governing body of the IMF, there was a renewed concern about global inflationary pressures.

The IMF also said it was making progress on resolving global trade imbalances through its new “multilateral surveillance” process. Rodrigo Rato, the IMF managing director, said: “I think that engaging five economies in discussing global imbalances in a multilateral institution like the IMF is already a very important stet in addressing how to resolve those issues.”

The air of optimism was, in part, a response to worries that too much emphasis was being placed on economic risks in the world, senior officials said.

The biggest risk according to Gordon Brown, the chancellor, and Hank Paulson, the US Treasury secretary, was the threat of protectionism arising from the stalled Doha trade talks.

Speaking from Brussels, Peter Mandelson, the European trade negotiator added: “Since the summer it has become even clearer that to solve the stalemate over agriculture the EU and the US need to show leadership and move as far as possible towards the G20 group of developing countries”.

Separately, the IMF on Sunday night was on the verge of securing a vote in favour of its reform package to rebalance power within the organisation. An immediate increase in the voting share of China, South Korea, Turkey and Mexico had been proposed along with a fundamental review of the formula underpinning votes.

But in a sign that the second stage of the reform would be much more difficult, many countries voiced contradictory opinions on their preferred formula for determining their economic weight in the world.