G7 & Yellen Work Wonders For The Japanese Yen

Global growth and economic woes continued to dominate the G7 summit this past weekend with China’s expansion as well as weak economy were a main subject of discussion along with Japan’s yen and Brexit. The summit participants had no lack of major issues to tackle.

[wibbitz]b6c7328b4af7b430f930facfa912c6b76[/wibbitz]

A declaration at the G7 meeting in Japan says a vote by the UK to leave the European Union would pose a “serious threat to global growth”.

In its final statement, the group warned that a UK exit from the EU would reverse the trend of increased global trade, investment and jobs. The meeting brings together the world’s leading seven industrialized nations.

The final communique set global growth as a priority for dealing with threats to the world’s economy and security. But the warning about the economic consequences of the UK leaving the European Union comes as Britain prepares for a referendum on 23 June.

Seeking Alpha reported that Japan’s Prime Minister Abe, began with doom and gloom. Accounts suggest he warned of the risk of a crisis on the scale of Lehman if appropriate policies are not taken. It is not clear to whom Abe was addressing. It may not have been the other heads of state. It may have been a domestic audience Abe had in mind.

At the finance ministers and central bankers meeting last week, Japan’s Aso indicated that contrary to speculation, the retail sales tax hike would still be implemented next April. However, the opt-out has always been a serious crisis on the magnitude of Lehman’s demise. The Abe government is believed to be putting together a fiscal support package.

The two-day annual summit, which kicked off in Ise-Shima Thursday, brought together leaders from the U.K., Canada, France, Germany, Italy, Japan and the United States. The meeting comes at a time when economies across the globe are still struggling to recover from the sharp slowdown in China that has cooled demand, and the plunge in oil prices and commodities.

Japan’s export-dominated economy, which was already reeling under years of deflation, has been the hardest-hit. The country’s central bank now expects Japan’s economy to grow at a measly pace of 1.2 percent in the fiscal year 2016.

In recent weeks, as the country’s economy continues to struggle with weak consumption and sluggish exports, many in Japan have voiced the possibility that the government may intervene in the currency markets to arrest the yen’s appreciation — an issue that pits it against the U.S. and most European nations.

Speculation of intervention by Japan has been an issue for global bankers for the last several weeks, but the recovery of the US dollar last week seemed to resolved the issue after Janet Yellen remained hawkish sending the greenback to trade at 95.90 its highest level in months. The outcome was a lower Japanese yen, which moved to trade at 111.00 on Monday morning.

The pound which continues to look at risks by the Brexit referendum is down 13 points at 1.4625.

The annual meeting did little to consolidate how those governments are going to approach that. But it may have a broader importance for the United States.

The wording out of the event was circuitous at best. “We remain committed to ensuring that growth is inclusive and job-rich, benefiting all segments of our societies,” their communique said. “We have strengthened the resilience of our economies in order to avoid falling into another crisis, and to this end commit to reinforce our efforts to address the current economic by taking all appropriate policy responses in a timely manner.”

But at a time that the United States is considering raising interest rates as early as June, while Japan is keen on introducing further stimulus and intervening to weaken its currency, there was little revealed about how the seven nations would go about producing growth. They didn’t say how they would ensure that we don’t slip into a global recession, as some economists predict.