G7 communique - markets need to factor Japan upturn

ESSEN, Germany, Feb 10 (Reuters) -The G7 communique issued after talks in Essen on Saturday made no direct reference to the yen in its paragraph on foreign exchange but cited China by name in a repeat appeal for currency flexibility.

The communique also said, however:

"Japan's recovery is on track and expected to continue. We are confident that the implications of these developments will be recognised by market participants and will be incorporated in their assessments of risks." The paragraph dedicated to foreign exchange said:

"We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely, and cooperate as appropriate.

"In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur."

That wording was almost identical to that of the exchange rate paragraph from the Singapore G7 meeting last September.

The Singapore text, published on Sept. 16, 2006 read as follows:

"We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely and cooperate as appropriate. Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur."