LONDON, Sept 22: The dollar dropped sharply on Monday, plunging to a three-year low against the yen, after a call by G7 nations for “flexibility” in exchange rates dealt a blow to Japan’s attempts to rein in its currency.

The euro stood at $1.1475, against 1.1376 late on Friday in New York.

The dollar was being traded at 112.27 yen against 114.09 on Friday, having fallen overnight to 111.37, its lowest level since December 2000.

The move followed a call by finance ministers and central bank chiefs from the G7 industrialised nations’ club, meeting over the weekend in Dubai, for countries to liberalise their exchange rate policies.

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, a statement said.

Countries such as Japan, which tacitly intervenes to keep the yen economically competitive and China, which pegs the yuan to what US firms loudly complain is an unrealistically low level, were seen as the targets.

While no single currency or country was explicitly named, the message calling for a less interventionist approach to exchange rate policy in Asia is unmistakable, said ABN Amro analyst Aziz McMahon.

Tokyo had already been seen as wary to intervene ahead of the G7 gathering, as such a strong statement could herald a significant shift in policy, analysts said.

The yen’s surge reflects the belief in the foreign exchange market that the Japanese authorities have abandoned their policy of intervention and will now accept a stronger yen, said Derek Halpenny from the Bank of Tokyo-Mitsubishi.

US Treasury Secretary John later hailed the statement as a major step.

It really does represent a milestone change in the way that the G7 looks at the world, he told an Institute of International Finance conference in Dubai on the sidelines of the meetings.

The euro was changing hands at $1.1475 from 1.1376 late on Friday in New York, 128.81 yen (129.78), 0.6968 pounds (0.6956) and 1.5547 Swiss francs from 1.5549.

The dollar was being quoted at 112.27 yen (114.09) and 1.3548 Swiss francs (1.3668). The pound was at $1.6474 (1.6354), 184.90 yen (186.58) and 2.2323 Swiss francs (2.2362).—AFP