The US told Japan it would be watching for any sign it was manipulating its currency downward, but Tokyo said it met no resistance to its policies at a meeting of G7 finance ministers which concluded yesterday.
As ministers and central bankers met on Friday in London, differences were also evident over whether to prioritize debt-cutting or promoting economic growth.
US Treasury Secretary Jack Lew said Japan had “growth issues” that needed to be dealt with, but that its attempts to stimulate its economy needed to stay within the bounds of international agreements to avoid competitive devaluations.
“I’m just going to refer back to the ground rules and the fact that we’ve made clear that we’ll keep an eye on that,” Lew told the CNBC business news channel.
The yen hit a four-year low against the US dollar on Friday, beyond the psychologically important ￥100 mark. It also trades at a three-year low against the euro.
The moves were driven in part by Japanese investors shifting into foreign bonds, a move that had been expected since the Bank of Japan unveiled a massive stimulus plan in January.
Tokyo insisted its tumbling yen was not a hot topic at the meeting of finance chiefs.
“Japan took bold monetary and fiscal action to end prolonged deflation, with the government and the Bank of Japan working far more closely together,” Japanese Finance Minister Taro Aso told reporters after hours of talks with fellow G7 ministers and central bankers.
Policymakers are concerned Japan is engineering an export-led recovery that could hinder other regions’ ability to grow.
However, having urged Tokyo for years to do something to revive its economy, other world powers are not in a strong position to complain now that it is doing so. Then there is the fact that central banks such as the Federal Reserve and Bank of England have printed money in the way the Bank of Japan is.
“It is important that in line with the previous decisions at the G20 and IMF that there is no talk about currency wars,” EU Commissioner for Economic and Monetary Affairs Olli Rehn told reporters as he arrived at the summit. “There is discussion about how better to coordinate our economic policies.”
German Finance Minister Wolfgang Schaeuble said foreign exchange rates were on the agenda and that Japan had promised to take a cautious approach to the currency issue.
Participants welcomed the return to an informal G7 with no official communique. That could mean more robust debate than is generally aired at the meetings of the US, Germany, Japan, Britain, Italy, France and Canada.
A senior Japanese Finance Ministry official said Tokyo was honoring an agreement that monetary policy should focus on domestic objectives, not manipulating currencies.
As a result, Japan does not mind other countries monitoring its policies, the official said.