G7 Gives Two Thumbs Up to the BOJ

G7 summits aren’t usually known to be eventful. In fact, they can be quite boring at times! Finance ministers usually just talk about things happening in the global economy and rarely come up with anything new.

However, this wasn’t the case in the G7 summit held this past weekend. The meeting of the world’s top nations actually produced quite a bit of volatility in the forex markets. Just take a look at the many weekend gaps that formed on the charts and you’ll see exactly what I mean!

In a surprising turn of events, G7 finance ministers gave the rising U.S. dollar and falling Japanese yen their nod of approval. They seem to have no problem with the Bank of Japan (BOJ)’s super-easy monetary policy, saying that it’s a-okay in their books since it’s aimed at boosting the economy rather than directly weakening the yen.

But in every party is a party pooper. In the G7 summit, this role was played by Wolfgang Schäuble, Germany’s finance minister. He was the only participant who thought twice about giving Japan the green light, as he feels that “the relatively high levels of liquidity” in the markets could pose risks to the global economy.

One can’t help but wonder if Schäuble is merely protecting his own interests. After all, Germany is second only to China in global exports. It stands to suffer in the wake of a weaker yen, as it competes with Japan in many of its top exports (motor vehicles and machinery).

USD/JPY Chart

As a result, USD/JPY finally made a clean break above the 100.00 barrier. As you can see in the weekly chart, it is currently edging close to the 102.00 major psychological handle – a level it hasn’t reached since October 2008.

I don’t know about you, but the G7 finance ministers seem to have given the green light that market participants have long been waiting for, paving the way for further yen weakness. They basically showed the market that they have a united front, which completely dissipated the fears of the “brewing” currency war. Hopefully, the G7 officials are right, and the BOJ‘s actions will eventually lead to a stronger and healthier Japanese economy.