The Group of Seven nations are considering saying they won’t target exchange rates when setting policy as they try to calm concern the world is on the brink of a currency war, two officials from G-7 countries said.
Finance officials from the world’s key industrial economies have drafted a statement on currencies now being reviewed by senior policy makers, they said on condition of anonymity. The current wording, which still may be changed, combines the traditional backing for market-set exchange rates with a new line that governments don’t direct fiscal or monetary policy at driving currencies, one aide said.
Japanese Prime Minister Shinzo Abe’s push for more aggressive monetary policy has raised concern abroad that his government is directly seeking to weaken the yen, something it denies. In the talks, Japan has questioned the statement’s contents -- which would mark a strengthening in rhetoric from the G-7’s last joint comment in 2011 -- as it doesn’t want to be singled out for criticism, another official from a G-7 nation said, also on the basis they not be named.
Even if the new language makes it into the final statement, Japan will still be able to maintain policies which result in a weaker yen, said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. The currency fell toward its weakest since May 2010 versus the dollar today as Japanese officials signaled their commitment to the current strategy.
“It seems very likely that a modest shift in language and no shift in intended policies will enable Japan to do all it wants to do, including weaken the yen,” New York-based Englander said in a report to clients.
The G-7 is looking to release the statement before a Feb. 15-16 meeting in Moscow of finance ministers and central bankers from the Group of 20, which includes the G-7 and emerging markets such as Brazil, China and India.
The Wall Street Journal reported yesterday that the G-7 was debating a statement.
French Finance Minister Pierre Moscovici called today for a coordinated approach to stabilizing exchange rates, denouncing the “aggressive” currency-management policies of some countries.
“Exchange rates can’t be subject to moods or speculation,” Moscovici told reporters before a meeting of euro-area finance ministers in Brussels. “I’m pleading for a coordinated approach at the international level which enables exchange-rate stability, and also that these exchange rates reflect the fundamentals of our economies.”
His call was resisted by officials from Austria, the Netherlands and Luxembourg while Bundesbank President Jens Weidmann said the euro isn’t seriously overvalued and warned governments against trying to weaken it.
A Japanese government official, who asked not to be named because the discussions are private, said only that the G-20 nations, including those from the G-7, have been in contact ahead of the meeting in Russia.
The yen has weakened about 13 percent against the dollar since mid-November in anticipation of monetary stimulus advocated by Abe, who took office in December. His campaign has drawn statements of concern from Germany to Canada as officials fret that a weaker yen could harm their exporters.
Canadian Finance Minister Jim Flaherty told Bloomberg Television last month that he’d spoken to his Japanese counterpart, Taro Aso, to signal his concern. German Chancellor Angela Merkel said Jan. 24 that “I can’t say I’m completely free of worry when I look at Japan right now.” Russia, the G-20 chair nation this year, has also warned against the potential for reciprocal action to drive down exchange rates.
Japanese Economy Minister Akira Amari said Jan. 26 that the government’s focus is on reviving its economy and it is not actively pursuing a cheaper yen.
Japan is “absolutely not deviating from global standards,” Amari said. “I don’t comment on a foreign-exchange rate because it should be determined by the market. What we do is to implement policies.”
Shares of companies from Toyota Motor Corp. to Nissan Motor Co. have soared in recent weeks with the yen’s retreat, and economists at banks from Goldman Sachs Group Inc. to Nomura Holdings Inc. have boosted their projections for growth this year.
Haruhiko Kuroda, the head of the Asian Development Bank and a potential contender to run the Bank of Japan, said in an interview today that the yen’s slide is a “natural adjustment” from overvaluation. He echoed Abe’s calls for stepped-up stimulus to end deflation.
The G-7 hasn’t commented on currencies since a meeting of finance chiefs in the French city of Marseille in September 2011. On that occasion, they “reaffirmed our shared interest in a strong and stable international financial system and our support for market-determined exchange rates.”
“Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” according to the statement. “We will consult closely in regard to actions in exchange markets and will cooperate as appropriate.”
The topic of exchange rates may also come up on Feb. 13 when Jack Lew testifies before U.S. lawmakers as part of his confirmation process to become U.S. Treasury secretary.
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