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Takanori Yamamoto

The Yomiuri Shimbun

Publication Date : 17-02-2013

Financial ministers and central bank chiefs of the Group of 20 economies did not criticise Japan directly for its monetary and fiscal policies on the first day of talks Friday, instead leaning toward calls to avoid currency wars among countries.

Their joint statement, which was to be issued at the end of the two-day meeting Saturday night, was expected not to single out Japan for criticism.

Participants at the meeting in Moscow apparently showed some understanding of Prime Minister Shinzo Abe's economic policy dubbed "Abenomics."

On the first day of talks, many representatives said a currency war, in which countries intentionally devalue their currencies to boost exports, must be avoided. The joint statement was to include the G-20 participants' agreement to avoid competitive devaluation of their currencies.

Before the meeting, representatives from emerging economies had expressed concern that Abenomics, which involves bold monetary easing and an active fiscal stimulus package, is aimed at the depreciation of the yen.

Deputy Prime Minister and Finance Minister Taro Aso said he explained in Friday's meeting that the objective of Abenomics is to quickly lift the Japanese economy out of deflation. He said that meeting participants did not express any opinions, either supporting or opposing his statement, in response.

Observers said Japan was not singled out for criticism because other G-20 participants with different domestic circumstances judged they might initiate a blame game if they pointed fingers at a specific country.

The joint statement was to also include the necessity of swiftly shifting to a market-determined exchange rate system, keeping in mind transactions with China, which has yet to liberalise the yuan's exchange rate completely.

G-20 participants were to declare in the statement that foreign exchange market intervention by governments and central banks is undesirable. They were also to confirm that excessive volatility and disorderly movements in exchange rates would adversely impact the stability of the global economy.

Additionally, the G-20 participants were to agree that they will consider the potential ripple effects of their respective financial policies in light of complaints from emerging economies that a glut of speculative funds due to monetary easing measures taken by Japan, the United States and European countries have caused appreciation of their currencies and asset inflation.

A report that the issue of the yen's decline had escaped direct criticism at Friday's meeting prompted selling of the currency, with the dollar rising to 93.44-54 yen at 5pm Friday in New York.

Weak yen still a concern

Germany, one of the G-20 participants concerned that Abenomics is steering the yen's depreciation to expand exports, said Abe's policies could shake the independence of the central bank.

German Finance Minister Wolfgang Schaeuble met with Aso on Friday and asked about the intended effect of Abenomics.

Aso was able to justify the prime minister's economic policy at the meeting because Japan has suffered from prolonged deflation and a strong currency, which member countries seemed to understand.

However, G-20 participants maintain their stern view of Japan as the value of the yen has been rapidly decreasing. If the yen continues to drop, strong criticism of the nation is possible. Also, selling of the yen likely will stop in the market and the yen may start to rise, which will negatively impact the Japanese economy.

The government needs to carefully implement its policies while keeping in mind the concerns expressed over further depreciation of the yen.

Gist of draft G-20 joint statement

-- Swiftly shifting to exchange rate system determined by market.

-- Avoiding competitive devaluation of currencies.

-- Disorderly movements in exchange rates adversely impact economic and financial stability.

-- Global economic risk has been mitigated, but downside risk remains high.

-- Securing midterm measures to restore fiscal health to support recovery of the global economy.