G7 Meeting- Do As We Say, Not As We Do
Excerpts from MSN
Germany lobbied hard for a discussion of potential systemic risks to the stability of the world capitalist system from hedge funds, which are less regulated than many other funds, though the G7 said the funds had also improved market efficiency.
The huge pools of lightly regulated capital, estimated to total about $1.5 trillion, cause nervousness in some quarters because of the potential for a collapse to wreak widespread economic havoc as the complicated trades they make unwind.
The main innovation at a meeting dominated by currencies and market risk came in a declaration of confidence in the recovery of Japan's economy and warnings from top officials against the carry trade -- an investment play that compounds yen weakness.
In a statement issued after talks in Essen, Germany, the G7 said "the U.S. economy was solid and Europe rebounding broadly. Japan's recovery is on track and is expected to continue."
The yen recently hit a 21 year low on a trade-weighted basis and has shed four times as much versus the euro in the past year than versus the dollar, sparking concern that European exporters will suffer disproportionately in competition on world markets.
ECB Fed Head Jean Claude "Tricky" Trichet added a layer of warning against the practice of borrowing vast amounts in low yield currencies such as the yen to reinvest for a profit elsewhere.
Japanese Finance Minister Koji Omi said "I think we have come to the appropriate conclusion." And I'm sure they have...
Marco Annunziata, chief economist at UniCredit investment bank, said the G7 was clearly trying but still unlikely to reverse market trends.
"It's nice of them to send a warning on one way bets ... but it still sounds like cheap talk," he said...
Annunziata added that markets were well aware of Japan's economic recovery story but also that the country had yet to nail the coffin on a decade of deflation.
Moreover, he added, the G7 had also said the global economy was doing nicely. "That's a great backdrop for putting on even more carry trades".
Germany lobbied hard for a discussion of potential systemic risks to the stability of the world capitalist system from hedge funds, which are less regulated than many other funds, though the G7 said the funds had also improved market efficiency.
The huge pools of lightly regulated capital, estimated to total about $1.5 trillion, cause nervousness in some quarters because of the potential for a collapse to wreak widespread economic havoc as the complicated trades they make unwind.
The main innovation at a meeting dominated by currencies and market risk came in a declaration of confidence in the recovery of Japan's economy and warnings from top officials against the carry trade -- an investment play that compounds yen weakness.
In a statement issued after talks in Essen, Germany, the G7 said "the U.S. economy was solid and Europe rebounding broadly. Japan's recovery is on track and is expected to continue."
The yen recently hit a 21 year low on a trade-weighted basis and has shed four times as much versus the euro in the past year than versus the dollar, sparking concern that European exporters will suffer disproportionately in competition on world markets.
ECB Fed Head Jean Claude "Tricky" Trichet added a layer of warning against the practice of borrowing vast amounts in low yield currencies such as the yen to reinvest for a profit elsewhere.
Japanese Finance Minister Koji Omi said "I think we have come to the appropriate conclusion." And I'm sure they have...
Marco Annunziata, chief economist at UniCredit investment bank, said the G7 was clearly trying but still unlikely to reverse market trends.
"It's nice of them to send a warning on one way bets ... but it still sounds like cheap talk," he said...
Annunziata added that markets were well aware of Japan's economic recovery story but also that the country had yet to nail the coffin on a decade of deflation.
Moreover, he added, the G7 had also said the global economy was doing nicely. "That's a great backdrop for putting on even more carry trades".
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