ESSEN, Germany (AFX) - Japan is aware that the depreciation of the yen could lead its economy into a 'delicate situation', a source close to a G7 delegation said.
'I think that Japan is aware that the fact that is has a currency that is depreciating and that it is confronted with carry trades could lead to a delicate situation,' the source said.
Euro group president Jean-Claude Juncker said Japan's Finance Minister Koji Omi and Bank of Japan governor Toshihiko Fukui both told this weekend's G7 meeting that the Japanese economy is recovering and that this should be reflected in the yen's exchange rate.
German Finance Minister Peer Steinbrueck also said that the Japanese officials had indicated that they expected the yen to respond positively to the country's economic recovery.
The source said the warnings from European Central Bank president Jean-Claude Trichet and other G7 delegates on the risks to investors of engaging in 'one-way bets' on currencies was designed to avoid 'the development of bubbles in currency markets'.
Trichet earlier warned markets about the risks of one-way bets in currency markets, particularly in carry trades which have been one of the main factors depressing the yen in recent weeks.
'We want the markets to be aware of the risks in one-way bets, particularly on the foreign exchange markets,' Trichet told reporters after the G7 meeting. steve.whitehouse@thomson.com sw/jfb/pp COPYRIGHT Copyright AFX News Limited 2006. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited