"This will disappoint the market and won't stop the capital outflow from Japan," said Avinash Persaud, global strategist at JP Morgan. "G7 policymakers are focused on what's necessary in the long term rather than how to deal with the crisis today."
The G7 meeting came after joint US and Japanese intervention last week changed the direction of the dollar's trading against the yen. Officials said after the meeting that concrete action from Japan was "urgently needed" and although intervention last week had created a "window of opportunity" for Japan to repair its economy, the chance would not last for ever. Japan also ruled out specific action on solving its banks' bad loan problems until after the national elections on 12 July.
The meeting closed with a bland statement that analysts said would not calm market nerves. It said: "It is of vital importance to Japan, to the recovery of Asia and to the entire world economy, that Japan restore its banking system to health, achieve domestic demand-led growth and open and de-regulate its markets."
"There is a risk for a lot of disappointment." said Nick Parsons, chief currency strategist at Paribas Capital Markets in London. "The markets were looking not for promises of action but action itself."
Alison Cottrell, chief international economist at Paine Webber, said market disappointment was inevitable. "Japan was not going to come up with a permanent income tax cut over the weekend," she said. "Realistically, what could they have done?"
She added that US intervention to support the yen last week was more about supporting the Chinese yuan as President Clinton prepares for a trip to the Far East this week.
Michael Hughes, director of Baring Asset Management, agreed saying: "The intervention is now being interpreted as political rather than economic." He said the core challenge for Japan was to rebuild the credit base of its economy. "That has three aspects," he said. "To get rid of the lame duck banks that are technically bust; to ensure bank profitability is enhanced and to encourage partnership deals with outside groups."
On market reaction to the G7 meeting he said: "There is no new policy to get your teeth into. So the situation hasn't really changed. But there is a degree of value beginning to appear in Asia. People are looking for an opportunity to go back in but there are not enough signals yet to show that this is the time to do it."
David Kern, chief economist at NatWest, said: "The market is very fragile. So far the support of the yen was successful but there are many risks, and chances are some time over the next few weeks, the markets will again attack the yen."
Mr Persaud at JP Morgan said increased savings in Japan by people fearing unemployment and falling wages, together with the lack of a good investment return, were the forces driving the yen lower. "The only thing that can be done to halt the yen's decline is signal a shift in monetary policies on both sides," he said, adding that the Bank of Japan should no longer have a bias towards easing interest rates, and the United States should no longer have a bias towards tightening them. "Such statements would have sent a very important message to the market place that they are backing up the intervention with monetary policy," he said.Reuse content