Currency issues are expected to take center stage this weekend as finance ministers and bankers from the world’s seven richest nations gather for a meeting in Essen, Germany. Weakness in the Yen will likely spark a debate involving Germany, who wants the G7 (see info below) nations to prevent hedge funds from having too much influence over currency markets. Might something surprising come out of this meeting by Monday morning?
At the heart of the matter is the yen's weakness against the euro. It's caused some concern among EU finance ministers because it makes Japanese goods less expensive than those made by companies in the EU. The question becomes what role do hedge funds play in the Yen’s value?
“Hedge funds have played a role and continue to play a role in the Yen’s weakness,” said Rebecca Patterson, Global Currency Strategist at JP Morgan. “The hedge fund market is short Yen. But I wouldn’t overestimate the influence.”
Lara Rhame, Currency Strategist at Credit Suisse agreed. “I think hedge funds are going to come under a lot of scrutiny but they are not the only active participant in what many consider to be a crowded trade.”
It seems Germany sees it differently. German Bundesbank President Axel Weber told the Associated Press that "Hedge fund risks must be closely monitored."