World finance chiefs convened yesterday to take stock of the global economy, but agreement on the hottest issue before them, the weakening Japanese yen, is likely to prove elusive.
The range of topics confronting finance ministers and central bankers from the Group of Seven -- Britain, Canada, France, Germany, Italy, Japan and the US -- is dauntingly wide.
In addition to currency matters, the ministers at their two-day meeting are expected to assess worldwide economic prospects, global warming, financial governance in Africa, stalled multilateral trade talks and the operation of global hedge fund markets.
But it is the Japanese yen that has concentrated minds in the run-up to the meetings, notably as fissures have appeared between the eurozone on the one hand and Japan and the US on the other on what steps -- if any -- to take to stem a slide in the currency.
The yen has fallen 9.0 percent against the euro since last April, prompting fears in Europe the trend will see eurozone products lose competitiveness in overseas markets, dampening export performance and imperiling a nascent economic recovery.
German Finance Minister Peer Steinbrueck, who will host the talks, has therefore insisted that currency matters figure on the agenda.
"We have to talk about it," he told the Wall Street Journal in an interview this week.
His deputy, Thomas Mirow, later maintained that "exchange rates will play a role" in discussions here on the global economy. "The yen is an important currency along with others."
But the disquiet in the eurozone has not been matched in Britain and in the US, where US Treasury Secretary Henry Paulson appeared to dismiss eurozone suspicions that Japan is purposely keeping its currency weak.
"As far as we can see there's been no intervention since very early in 2004. It's my belief that the yen is traded on competitive markets," Paulson said in a speech to Congress this week.
In Japan Finance Minister Koji Omi has maintained that foreign exchange rates "should reflect fundamentals."
Omi's comment reflects an argument that the Bank of Japan cannot raise interest rates, which would tend to drive up the value of the yen, in the absence of inflationary pressure and a fragile economy.
Other Japanese officials have predicted that their currency will not in fact dominate the talks here this weekend.
Given the apparent rift in the G7, market analysts now expect little substantive action on the yen, with today's final communique merely repeating previous statements blandly calling for exchange rate stability.
As a result, the yen continued to fall on Asian markets on Thursday.
"Yen-buying momentum has been slowing as players are now reaching a consensus that the G7 might not highlight the [weakness of the] yen," said Saburo Matsumoto, chief forex strategist at Sumitomo Trust Bank.
The US has made it clear it is far more concerned about the Chinese yuan, which it says should be allowed greater room to appreciate.
US officials contend that an undervalued yuan gives Chinese goods an unfair competitive advantage on the US market and costs US jobs.
Chinese authorities have pledged to take steps to address such concerns but on their own terms and by their own timetable.
Commentator Philip Bowring, writing in the International Herald Tribune, said this week the US was "unwise to focus on China."
"To expect China to agree to faster revaluation while Japan does nothing defies common sense -- and exacerbates China's sense of grievance," he wrote.
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