After Brexit, G-7 Warns Against Disorderly Currency Moves, Vows to Provide Liquidity

Finance ministers and central bankers from the group issue joint statement as U.K. votes to leave EU

Foreign currency exchanges are seen displayed on a board in Sydney on June 23. PHOTO: DAN HIMBRECHTS/EUROPEAN PRESSPHOTO AGENCY

By TAKASHI NAKAMICHI andIAN TALLEY-June 24, 2016

Top finance officials from the Group of Seven leading industrialized nations on Friday issued a joint statement warning against sharp, disorderly exchange-rate movements—and added a vow to ensure “adequate liquidity” to markets—as the United Kingdom’s decision to leave the European Union jolted the global financial markets.

The G-7 was joined by a host of top-level officials from the International Monetary Fund, the U.S. and elsewhere who sought to calm jittery markets—and promised to step in if trading threatened to spin out of control.

Finance ministers and central bankers in the G-7, which include the U.K. said in its statement, “We recognize that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability.”

“We will continue to consult closely on market movements and financial stability, and cooperate as appropriate.”

The G-7 has essentially given Japan and other members the green light to intervene in their currencies. Under previous agreements, the world’s leading industrialized nations said exchange rate intervention was only legitimate if currency movements are “disorderly.”

Tokyo’s leadership has already signaled it may intervene to tame yen strengthening. Against the U.K. pound, the yen has already retreated from its steepest gains over the last several hours. And although the U.S. Treasury and Fed officials said they’re prepared to act and work in concert with other global policy makers, there is no sign yet of intervention by Washington.

The seven advanced economies also said they stand ready to use standby instruments to ensure adequate liquidity in the financial markets. In the wake of the 2008/2009 global financial crises, the Fed and other major central banks opened up standing short-term credit lines to cover dollar shortages.

Christine Lagarde, managing director of the International Monetary Fund, said the emergency lender “strongly supports” commitments from the Bank of England and the European Central Bank “to supply liquidity to the banking system and curtail excess financial volatility.”

So far, however, none of the G-7 central banks said they have tapped the swap lines.

“We remain united and continue to maintain our solidarity as G-7,” the statement added, likely to reassure global markets that even though the U.K. is leaving the EU, the Brexit votes wouldn’t affect the group’s ability to collaborate on global economic matters.

“We will work closely with both London and Brussels and our international partners to ensure continued economic stability, security, and prosperity in Europe and beyond,” Treasury Secretary Jacob Lew said.

The secretary said officials would continue to monitor developments in financial markets closely and consult with their counterparts overseas, but expressed confidence policy makers would be able to avert any potential crises.

“The U.K. and other policy makers have the tools necessary to support financial stability, which is key to economic growth,” he said.

The G-7 also said the U.K. economy and financial sector remain “resilient,” and that the group is confident that U.K. authorities are “well-position to address the consequences of the referendum outcome.”

The Brexit is expected to jolt the U.S. and other economies and frustrate central bank efforts to spur growth.

Already, the referendum sent the dollar soaring as the British pound and euro plunged and equities markets into a nose-dive. The Dow Jones Industrial Average, for example, was down more than 400 points, or over 2%, Friday morning.

In the U.S., it will likely push back any plans for the Fed to raise interest rates, with some economists now predicting no raises anytime this year. Japan has been trying to push the yen’s value down by controversially pushing rates into negative territory.

The strong dollar weighs on U.S. exports, exacerbating the trade problems caused by the Brexit as it hits U.K. and European consumer confidence, investment and overall demand for U.S. products. Buyers, firms and investors, already skittish about U.S. and global economic prospects, likely will be even more hesitant to spend any cash—and more inclined to save—another weight to the U.S. economy.

Write to Takashi Nakamichi at takashi.nakamichi@wsj.com and Ian Talley at ian.talley@wsj.com