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G-20 toughens stance against efforts to influence exchange rates

Group of 20 finance chiefs sharpen their opposition to governments trying to influence exchange rates but stop short of singling out Japan for criticism.

February 19, 2013|Bloomberg News

Group of 20 finance chiefs sharpened their stance against governments trying to influence exchange rates as they sought to tame speculation about a global currency war without singling out Japan for criticism.

Two days of talks between G-20 finance ministers and central bankers ended in Moscow on Sunday with a pledge not to "target our exchange rates for competitive purposes," according to a statement. That's stronger than their position three months ago and leaves Japanese officials under pressure to stop publicly giving guidance on their currency's value.

Japan has faced suspicion that it's trying to depreciate its currency, which lost about 7% this year as Prime Minister Shinzo Abe, who took office in December, campaigned for looser monetary policy to end 15 years of deflation.

With the yen near its lowest level against the dollar since 2010, policymakers are attempting to ease concern that some countries are trying to weaken exchange rates to spur growth through exports. The risk is a 1930s-style spiral of devaluations and protectionism if other countries retaliate to safeguard their own economies.

"Politically motivated devaluations can't sustainably improve competitiveness; they don't solve structural problems and they set off reactions," said Jens Weidmann, president of Bundesbank, Germany's central bank. "The clear language in the communique underlines this unity and will allow the debate in the future to take place with a less excited tone."

The new commitment is probably aimed at telling the Japanese that although they can stimulate their economy, they shouldn't point to specific yen levels as desirable, said Chris Turner, head of foreign-exchange strategy at ING Groep in London. The currency may initially climb this week, but it will soon resume its slide toward 100 a dollar from 93.50 as the Bank of Japan keeps easing policy, he said.

"It makes it harder for the Japanese to talk down the yen, but they will let their policies do the talking," Turner said.

Japanese officials in Moscow denied driving down their currency, arguing that its fall was a byproduct — not a focus — of their effort to revive the world's third-largest economy.

"The Bank of Japan's measures have been and will remain targeted at achieving a robust economy through stable prices," Bank of Japan Gov. Masaaki Shirakawa said. The G-20 statement is "absolutely in the same spirit as our monetary policy," he said.

That stance won support in Moscow.

"There was no censure of the Japanese attitude, which was considered a policy to develop its economy and not to intentionally devalue," said Brazilian Finance Minister Guido Mantega, who popularized the term "currency war" in 2010.

"Talk of currency wars is overblown," said Christine Lagarde, managing director of the International Monetary Fund. "People did talk about their currency worries."

The Japanese defense echoes comments by U.S central bankers, who have run into criticism from emerging market officials such as Mantega for embracing stimulus. They complained that the policy undermined the dollar and strengthened other currencies.

In a nod to such complaints, the G-20 members agreed to monitor and minimize any "negative spillovers" and said that monetary policy should always be aimed at domestic needs, according to the statement.

Developed nations should "pay attention to the effects their monetary policies have on external markets," Chinese Vice Finance Minister Zhu Guangyao told the state-run Xinhua news service from Moscow.

Federal Reserve Chairman Ben S. Bernanke said Friday in Moscow that the U.S. has deployed "domestic policy tools to advance domestic objectives," adding that bolstering the U.S. economy will support world growth.

Unlike their American counterparts, Japanese officials including Abe have commented publicly on their exchange rate's level, fanning speculation that they welcome its fall and that the yen's weakness plays a part in their recovery strategy.

Japanese ruling-party lawmaker Kozo Yamamoto, who is close to Abe, said in an interview Thursday it would be "appropriate" for the yen to trade at about 95 to 100 to the dollar. Deputy Economy Minister Yasutoshi Nishimura said Jan. 24 that it wouldn't be a problem if the yen reached 100.

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