European financial policymakers spoke out against rapid or messy foreign exchange movements on Friday, a week after the euro hit a record high against the Japanese currency.
Asked about yen weakness, European Central Bank President Jean-Claude Trichet and Eurogroup chairman Jean-Claude Juncker both said that market swings were unwelcome.
"Any sharp change in exchange rates is likely to lead to risks which would be unwelcome. Excessive volatility and disorderly changes are undesirable," Juncker said at a news conference.
Trichet, who guards his words carefully on foreign exchange issues and has not spoken out for many months on currencies, backed these comments.
"Excessive volatility and disorderly movements are undesirable for economic growth," he said after a Eurogroup meeting of euro-zone finance ministers and the ECB chief where they prepared for the G7 gathering next week in Singapore.
While Trichet's language was identical to that used in the last G7 finance ministers' communiqué in April, his usual practice is to say nothing on currencies, telling questioners to refer to the G7 statement.
Pressed again on yen weakness at a later news conference while European Union finance ministers and central bankers were meeting here, Trichet repeated his position.
"As regards the Eurogroup and myself ... we thought excessive volatility was not welcome, full stop. I have nothing to add to what I said this morning," he said.
Derek Halpenny, currency economist at BOTM-UFJ in London, said European officials appear to be getting worried about the risks from the rising euro currency. "Given the comments today, possibly they are concerned about the potential for volatility going forward - given the scale of the move higher and if there were to be a sudden collapse in euro/yen," he said.
The euro has gained steadily against the yen since June to reach a record high against the yen at 150.78 on August 31, according to Reuters data. For the year, it is up almost 6 percent. Gains against the US dollar have been even greater this year, up nearly 7 percent to 1.2666 currently.
"It's looking at the future and hoping that we don't see any kind of extreme moves, given that we are at historical levels in euro/yen," said Halpenny.
Sophia Drossos, currency strategist at Morgan Stanley in New York agreed. "Some of the comments over the last few days show there is sensitivity to euro strength."
The remarks had little impact, however, in a currency market dominated on Friday by technical buying of the US dollar.
Irish Finance Minister Brian Cowen said that the relative strength of the euro currency "does impact the growth of the European economies." Economists are starting to caution that euro strength could impede otherwise healthy euro zone economic growth in 2007. The risk could grow if the ECB continues raising interest rates at a steady clip and Japan moves slowly on rates while the United States stops. This would attract more cash into the euro zone.
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