By ELLEN READ AND AGENCIES
The yen yesterday rose to its highest level in nearly three years against the United States dollar amid speculation that Japan will stop holding the currency at an artificially low level to protect exporters.
The surge followed a demand by the Group of Seven (G7) industrial nations for more exchange rate flexibility from Asian nations to help iron out global economic imbalances.
The statement from the Dubai G7 meeting was seen as a victory for the United States, which has led criticism of China, Japan and other Asian nations for holding down their currencies, which makes it harder for US exporters to compete in world markets.
Other Asian currencies also rallied, the South Korean won, Thai baht and Singapore dollar all posting healthy gains.
"It will definitely change how the regional central banks operate," said Michael Jansen, a Sydney-based currency strategist with the National Australia Bank.
"They're no longer in an environment where the Bank of Japan is as staunch as it was [toward fighting strength in the yen]."
Japanese authorities are believed to have spent US$70 billion this year to cap any rises in the yen in an effort to protect companies whose exports are seen as critical to the country's economic recovery.
China's central bank said it would keep its currency fixed to the dollar for now, defying the G7 demand.
China has pegged the yuan at about 8.3 per dollar since 1995, allowing it to track the US currency's decline.
Li Ruogu, assistant governor of the People's Bank of China, told the Institute of International Finance in Dubai that he did not see the logic of scrapping the yuan's peg.
"We've already promised that we will gradually liberalise, but I cannot give you a clear timetable."
Bank of New Zealand currency strategist Sue Trinh said Japanese authorities were likely to tolerate a firmer yen, with a move to 107 to the dollar a reasonable medium-term target.
Westpac senior currency strategist Johnathan Bayley said the G7 demand and the rally in the Japanese yen confirmed a change in Japanese currency policy and heralded a new era for the currency market.
"Asian currency correction, prior to the weekend, has been limited, with European economies having to bear the brunt of United States dollar weakness," he said.
"Breaking the Asia/Europe stalemate should also facilitate the next leg of the broader United States dollar correction," Bayley said.
This is under way already - the New Zealand dollar, Australian dollar and euro are all at multi-week highs against the greenback.
Market analysts said New Zealand exports would become more attractive to Asian consumers if those currencies lifted from their artificially low levels.
Yen soars after G7 demand for Asian currency flexibility
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