Federal Reserve Chairman Ben S. Bernanke defended the Fed's monetary… (Misha Japaridze / Associated…)
WASHINGTON -- Top finance officials of the Group of 20 largest economies sought Saturday to allay fears of a currency war, pledging not to target exchange rates to gain a competitive advantage in trade.
But the joint statement, issued at the end of a G-20 meeting in Moscow, did not single out any country, essentially giving a pass to Japan to keep pursuing its economic policies despite a dramatic slide in the value of the yen since last November.
Japan's new government under Prime Minister Shinzo Abe, who will meet with President Obama next week in Washington, had been talking down the yen and has pressed its central bank for more expansive monetary stimulus to break out of its deflationary trap and boost the nation's stagnant economy. A cheaper currency helps a country's exporters sell their goods to foreign markets.
Some analysts said they now expected the yen to dip further, a prospect that could stoke more contention over exchange rates and present some complications for the U.S. in its long-running efforts to influence China to make more rapid adjustments in its currency.
"The U.S. could tolerate the yen depreciation, but clearly this is a potential problem in so far as China could interpret it as a possible green light to make its currency weaker," said Domenico Lombardi, a senior scholar at the Brookings Institution in Washington.
American officials were careful not to fault Japan, an important ally in Asia. What's more, the Federal Reserve also has taken extraordinary measures to stimulate its domestic economy, for which the U.S. has come under similar accusations from some G-20 nations that it was aiming to cheapen the dollar to boost exports.
Federal Reserve Chairman Ben S. Bernanke, in remarks Friday at a G-20 session with finance ministers and central bankers, said the U.S. was simply "using domestic policy tools to advance domestic objectives."
The Fed has been aggressively buying Treasury bonds with the aim of pushing down long-term interest rates to stimulate investment and reduce high joblessness, but that has contributed to a weakening of the dollar.
Many economists believe that currency manipulation occurs when a government intervenes, for example by buying up dollars, specifically to devalue its currency. This, they say, is different from what may be an unintended byproduct of large-scale monetary stimulus to support one's domestic economy.
Intended or not, other analysts say the distinction is not so clear when the end result is the same.
Aiming to make that clearer, the G-20 statement said that monetary policies should be directed at price stability and domestic growth. "We will refrain from competitive devaluation," it said.
The statement said the G-20 would "monitor and minimize the negative spillovers on other countries of policies implemented for domestic purposes," but it did not set any benchmarks or enforcement mechanism.
A weaker Japanese yen isn't likely to have a major effect on the U.S. economy, and certainly not anytime soon. American officials are far more interested in the politically sensitive issue of the Chinese currency. Although the Chinese yuan has risen significantly against the dollar in recent years, many in the U.S. still consider it undervalued and harmful to American exporters.
Besides currency fluctuations, G-20 finance officials also took up budget austerity. The Eurozone's debt crisis and deepening recession have prompted some in Europe to rethink the idea of setting tough budget deficit targets.
The Obama administration, fighting at home to avert stringent fiscal cuts that could hurt the recovery, has long pressed the G-20 to put more emphasis on pro-growth policies and less on austerity, but Germany and some others have insisted on fiscal consolidation and debt reduction as key pathways to recovery.
A debt-cutting agreement forged at the G-20 in Toronto in 2010 will expire later this year, and officials in Moscow made no new announcement on this issue.
Reflecting a reduced sense of urgency as the Eurozone's troubles have eased somewhat and the global outlook has moderately improved, the joint statement noted that risks to the world economy had receded.
Still, it said, growth remained too weak and unemployment too high. "A sustained effort is required to continue building a stronger economic and monetary union in the euro area, and to resolve uncertainties related to the fiscal situation in the United States and Japan, as well as to boost domestic sources of growth in surplus economies."
The G-20 represents the largest industrialized and developing nations, with about 90% of the world's economic output. It was designated in 2009 as the primary international forum for world leaders to address global financial issues and coordinate economic policies.
The finance ministers' gathering, which ended Saturday, was the first with Russia's President Vladimir Putin as this year's chairman of the G-20. Additional sessions are scheduled in the spring and summer before Obama and other heads of G-20 economies meet in September in St. Petersburg, Russia.
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