Group of 20 finance chiefs sharpened
their stance against governments trying to influence exchange
rates as they sought to tame speculation of 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 yesterday 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.
With the yen near its lowest level against the dollar since
2010, policy makers are attempting to soothe 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,” Bundesbank President
Jens Weidmann
said yesterday. “The clear language in the communiqué
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 while 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 NV in
London. While the currency may initially climb this week, it
will soon resume its slide toward 100 per dollar from 93.50 as
the
Bank of Japan keeps easing policy, he said.
‘Talking’ Policies
“It makes it harder for the Japanese to talk down the yen,
but they will let their policies do the talking,” said Turner.
Japan has faced suspicion it’s trying to depreciate its
currency, which lost about 7 percent this year as Prime Minister
Shinzo Abe, who took office in December, campaigns for looser
monetary policy to end 15 years of deflation.
Japanese officials in Moscow denied driving down their
currency, arguing 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 Governor
Masaaki Shirakawa said yesterday. The
G-20 statement is “absolutely in the same spirit as our
monetary policy,” he said. Finance Minister
Taro Aso said a
stronger Japan would “have a positive impact on the global
economy.”
‘No Censure’
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 International
Monetary Fund Managing Director
Christine Lagarde. “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, which has then
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.
‘Pay Attention’
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 Feb. 15 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 a Feb. 14 interview it would be “appropriate”
for the yen to trade at about 95-100 to the dollar. Deputy
Economy Minister
Yasutoshi Nishimura said on Jan. 24 that it
wouldn’t be a problem if the yen reached 100.
U.S. Treasury Undersecretary
Lael Brainard used a speech in
Moscow to criticize “loose talk about currencies.”
Profit Shifting
The G-20 also pledged to work together to curb
multinational companies’ leeway to shift profits to low-tax
countries, endorsing an initiative spearheaded by the U.K,
France and Germany.
“We are determined to develop measures to address base
erosion and profit shifting, take necessary collective actions
and look forward to the comprehensive action plan” the
Organization for Economic Cooperation and Development will
present in July, the G-20 said.
The Moscow meeting finished after a week of volatility in
financial markets that started when the Group of Seven rich
nations said on Feb. 12 that its members won’t use policies to
“target exchange rates” and would focus on domestic needs.
Confusion then broke out as G-7 officials bickered over whether
their first joint comment on currencies since 2011 implied
irritation with Japan.
‘More Rapidly’
The yen fell on Feb. 15 for the first time in four days as
early drafts of the G-20 statement failed to echo the G-7’s vow.
Part of the pledge was added following all-night talks in the
Russian capital as the club of the largest developed and
emerging economies also reiterated they will move “more
rapidly” toward market-determined exchange rates and “refrain
from competitive devaluation.”
The G-20 also said that while the risks to the world
economy have receded, its growth remains too weak and
unemployment is too high in many countries. That requires more
work to create a stronger monetary and economic union in the
euro area, resolve uncertainties surrounding the budgets of the
U.S. and Japan and boost domestic demand in economies with large
trade surpluses.
Advanced nations accepted the U.S.’s position by not
setting new fiscal targets to replace those they agreed on in
2010 and which many of them are on course to miss. They pledged
instead to develop “credible medium-term fiscal strategies.”
Japanese officials aren’t alone in accepting a cheaper
currency as good for growth.
Bank of England policy maker
Martin Weale said in a speech
yesterday that although U.K. central bankers don’t “target the
exchange rate,” there is reason to tolerate any inflation
resulting from the pound’s six-year decline.
Not all G-20 policy makers want a weaker currency. Weidmann
said in a Feb. 13 interview that “the exchange rate of the euro
is broadly in line with fundamentals” and “you cannot really
say that the euro is seriously overvalued.”
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