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Published on March 22, 2011
Interview given by Christine Lagarde, Minister for the Economy, Finance and Industry, to the “Les Echos” newspaper

Paris, March 21, 2011

Q. – The G7 finance ministers and central bank governors decided on Friday to intervene on the foreign exchange markets to support the yen. What reasons led you to this first intervention since the autumn of 2000?

THE MINISTER – In the face of the tragic events affecting the Japanese nation, I took the decision – because France this year holds the G7 and G20 presidency – to organize a telephone conference on the night of Thursday to Friday. In view of the disaster and the developments seen on the foreign exchange markets, this decision was justified. However, following the discussions held a little earlier in the morning between the G7 Treasury secretaries and central bank deputy governors, the decision to go ahead with an intervention wasn’t a given. The Japanese authorities had only said they hoped for a message of support from the G7 countries. The initial intention of this interministerial telephone meeting was to reaffirm the market operation rules the G7 has been hammering out for a few years, to prevent excessive volatility and disorderly exchange rate fluctuations. Now, in the space of four days last week, the situation deteriorated considerably for the yen. We’ve never witnessed a currency appreciate so much on the market within a few days. So at the end of our discussions we took the decision to intervene jointly.

Q. – Was that at the Japanese authorities’ request?

THE MINISTER – Yes. The Japanese monetary authorities had already intervened massively on their market by injecting liquidity. The Japanese financial markets, I’m keen to stress, have continued to function normally despite the huge problems of electricity supply caused by the tsunami and the earthquake. The authorities asked us to support them in order to calm things down with regard to their currency. Too rapid an appreciation could have destabilized their economy a little more. We couldn’t add insult to injury and allow speculation to gain a foothold in the market. True, the disaster the Japanese nation is facing has certainly resulted in foreign exchange hedging by investors and, no doubt, the withdrawal of capital by foreign insurance companies, which have led to a strengthening of the yen. But we had to nip in the bud any speculation that might have followed. As for the Japanese currency’s movements on Friday – which wiped out four sessions of upward trading – the central banks’ intervention is an indisputable success.

Q. – Can we expect other operations of this kind if the yen resumes its upward trend?

THE MINISTER – The effectiveness of an intervention by the central banks depends partly on the surprise effect. So there’s no set timetable for another intervention. We’ll decide in due course.

Q. – Until now, the G20’s message has been that countries enjoying large trade surpluses must let their currencies appreciate. But the goal of Friday’s intervention was the opposite. Aren’t you afraid of sending a confusing message to the international investment community?

THE MINISTER – The aim of Friday’s interventions was to halt any rapid rise or any hint of speculation. The message isn’t to tell the markets that the Japanese currency must reverse its upward trend and depreciate from today onwards. In the meantime, let me point out that we reactivated a G7 that had recently become rather discredited. It’s an entirely justified reactivation under the present circumstances.

Q. – What can we expect the G20 or the G7 to do to help Japan overcome her difficulties?

THE MINISTER – The International Monetary Fund is ready to meet all the necessary financing needs of Japan, whose financial power is considerable. It’s true, the public debt is high in relation to gross domestic product. But the overall net debt is reasonable. Having said that, it’s true that the cost of the current disaster will exceed that entailed by the Kobe earthquake in 1995. The Japanese authorities are undoubtedly going to adopt an amended finance law to approve a reconstruction budget. The G7 countries will be ready to help Japan if necessary./.

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