Hosts Russia said on Thursday that G20 finance officials meeting in Moscow would back the thrust of a G7 statement on currencies, but indicated there was still haggling over the final wording.
Finance ministers and central bankers were flying to Moscow for the first big meeting of Russia’s annual turn as G20 chair amid disarray among advanced economies over how to address the policies of Japan’s new government which have driven the yen down.
The G7 issued a joint statement on Tuesday reaffirming a “longstanding commitment to market-determined exchange rates,” but the show of unity was quickly undermined by off-the-record briefings critical of Tokyo.
Russia said that the emerging market economies that make up the rest of the G20 — who together account for 90 percent of the world economy — will back the G7’s core message. However, the final text may diverge.
“The language may differ [from the G7], but the intent will remain the same,” Russian Finance Minister Anton Siluanov told reporters before the talks yesterday and today.
Addressing the attempt by Japan’s new government to reflate its economy, which has cause the yen to weaken, Siluanov said: “There should be competition between economies, not currencies.”
When the G20 last met in November last year, its statement contained a call to “refrain from competitive devaluation of currencies” that was not referenced by the G7 this week in what Tokyo took to mean its policies had won a free pass.
Seeking to break out of two decades of deflation and stagnation, Japanese Prime Minister Shinzo Abe has embarked on a huge round of fiscal and monetary expansion aimed at raising the inflation rate to 2 percent.
The yen has fallen by around 20 percent since November last year, triggering a major rally in Japanese stocks that, the government hopes, will kick-start growth by encouraging savers to consume and companies to invest.
With the US, Britain and the eurozone all running ultra-loose monetary policies, some emerging market exporters have sounded the alarm over “currency wars” that they say will devalue their foreign reserves and hit their competitiveness.
However, not all: Mexico’s central bank Governor Austin Carstens said that, while he backed the G7’s commitment to market driven exchange rates, it was also important to refrain from rash rhetoric.
“If we enter into a real currency war what will end up happening is adding a lot of volatility to markets, pushing up risk premiums and no one would end up winning,” Carstens said in Mexico City. “It ends up generating net costs for all countries and not net gains.”
Russian officials have been careful to note that Japan has not intervened on currency markets to weaken the yen, suggesting that Tokyo would not come under major pressure in Moscow.
Before flying to Moscow, Bank of Japan (BOJ) Governor Masaaki Shirakawa defended his central bank’s aggressive monetary expansion, saying it was aimed at reviving the economy not at weakening the yen.
His comments came after data showed Japan’s economy unexpectedly contracted in the fourth quarter, failing to escape a mild recession, bolstering the government’s demand for more radical stimulus measures that could cause the currency to weaken further.
Shirakawa said he would make that point clear to his G20 counterparts at this weekend’s meeting in Russia, where Japan may face heat from some countries unhappy with the yen’s recent steep falls, such as export competitor South Korea.
“The BOJ is conducting monetary policy to achieve stability in Japan’s economy. It will continue to do so,” he told a Tokyo news conference before departing for Moscow.