Currencies: Dollar Sharply Lower Versus the Yen as G-7 a Snoozer

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The dollar is getting rocked against the yen this morning, and it's a little more of "same old, same old" for the struggling euro, as traders awake in New York to find that the Group of Seven's weekend meeting is serving milquetoast for breakfast.

There's palpable disappointment that the G7's weekend

communique didn't explicitly mention, as it had after previous summits, its desire to see a weakening in the yen and a strengthening in the euro. Several finance ministers who attended the Washington pow-wow expressed that sentiment following the meeting, but they appear to have had little affect. Japanese officials desire a weaker yen because it cheapens exports, enhancing economic recovery.

"It was a surprise, in that in the last two statements they have mentioned specifically the government of Japan's concern with the strength in the yen and they didn't even do that," said Anne Parker Mills, currency strategist at

Brown Brothers Harriman

. "We thought they'd reiterate what they said last time, and they didn't."

As of the New York open at 8:30 a.m. EDT, the dollar was weaker by nearly two yen than Friday afternoon, as dollar/yen traded at 103.68. The euro continued to struggle against the dollar, and at the New York open, it was traded at $0.9576.

The only mention of current exchange rates in the G7's communique was a bland, snooze-inducing statement saying, "we emphasized our view that exchange rates among major currencies should reflect economic fundamentals. We will continue to monitor developments in exchange markets and cooperate as appropriate."

That's about as definitive and poignant as Treasury Secretary

Lawrence Summers

repeating the mantra that a "strong U.S. dollar" is in the best interests of the U.S. economy. Come to think of it, he did say that this weekend.

Other officials, including French central bank chief

Jean-Claude Trichet

and German finance minister

Hans Eichel

, made comments during the weekend attempting to talk up the euro and talk down the yen, but those comments haven't had any impact. The G7 nations include the U.S., Great Britain, France, Canada, Italy, Germany and Japan.

Dollar/yen did bounce overnight, on rumors that the

Bank of Japan

would buy dollars to support the continued recovery of the Japanese economy. A weaker yen drops prices on Japanese exports, allowing the Japanese to increase exports, which enhances demand for products. G7 officials said during the weekend that Japan hasn't yet achieved a "secure recovery."

At one point overnight, dollar/yen rose to 105.40 before dropping back when Japanese officials denied the rumors, saying they would not intervene by buying dollars to weaken the yen, a tactic that has rarely worked in recent months.

"If they see the wave of real money selling they won't stand in the way," said Tony Norfield, global head of foreign exchange research at

ABN Amro

in London. "If the dollar/yen fell to 102, you'd expect some intervention."

Dollar/yen was at one point as weak as 103.24 on the expectations that U.S. equity markets would open down after Friday's

massive head-banger of a selloff, but have recovered slightly. Norfield said the fortunes of dollar/yen are still tied more to the prospects for the Japanese economy than the movements in U.S. equity markets.

Analysts were startled that the euro didn't derive any strength from expected weakness in the U.S. equity market, because there's a great amount of direct investment in U.S. stocks by European investors. The best level the euro could muster overnight was $0.9671 before dropping back.

"It's a surprise that the euro is not stronger," said Norfield. "It's hard to pin down why that's the case. To some extend, we're getting signals that people have

already been worried about the drop in equities in the U.S. and have done their hedging already."

The Australian dollar, meanwhile, continued to weaken and now sits at 18-month lows against the dollar. It traded at $0.5912 at the New York open, down from an overnight high of $0.6056.