DUBAI, 21 September 2003 — The Group of Seven industrial nations yesterday took aim at Asian governments that keep a tight grip on their currencies, calling for more exchange rate flexibility to help iron out global economic imbalances.

The declaration marked a clear victory for the United States, which has led criticism of China, Japan and other Asian nations for holding down their currencies, thus making it harder for US exporters to compete in world markets.

“...we emphasize that more flexibility in exchange rates is desirable for major countries or economic areas to promote smooth and widespread adjustments in the international financial system, based on market mechanisms,” the G-7 said in a communique.

Officials said the phrase “economic area” was a euphemism for Asia, many of whose currencies are widely regarded as undervalued because of persistent intervention by Asian central banks in the foreign-exchange markets to stop them rising. Although they were less vocal, European G-7 members backed Washington in wanting Asian currencies to share the strain of accommodating the drop in the dollar that economists say will be needed to help cut America’s huge trade and budget deficits.

Those deficits were on the G-7’s agenda yesterday. German Finance Minister Hans Eichel agreed that they were providing a short-term boost to the global economy but expressed concern whether they could be readily financed over the medium term.

The adjustment so far has been borne chiefly by the euro, hitting exports from the 12 states that use the single currency.

The reference to “major countries” appeared to be directed at Japan, which has sold some $80 billion worth of yen this year to prevent the yen from punching through the ceiling of 115 per dollar that is widely seen as making the difference between profit and loss for many Japanese exporters.

Bank of Japan Governor Toshihiko Fukui denied that the G-7 had singled out any country.

“That applies to all countries and is not just limited to China or Japan,” he said.

Bank of England Governor Mervyn King put much the same gloss on the statement, while US Treasury Secretary John Snow said Japan had been very supportive of the G-7 statement.

Still, Jim O’Neill, chief global economist at Goldman Sachs, said the communique was surprisingly clear-cut and pointed to upward pressure on the yen when markets reopened on Monday.

O’Neill expected the yen would settle into a new range of 105-115 per dollar from the band of 115-120 that had prevailed for months until traders, anticipating the G-7’s decision, pushed the currency to a 2-1/2-year high of 114 on Friday.

“The Bank of Japan might still intervene, but any intervention would be very carefully designed to stop dramatic yen strength as opposed to weakening the yen,” O’Neill said.

The G7 - United States, Japan, Germany, France, Britain, Italy and Canada - met in Dubai on the sidelines of the annual meetings of the International Monetary Fund and the World Bank.