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G20 finance ministers meet amid 'currency war' fears G20 leaked communique doesn't single out Japan
(about 2 hours later)
Finance ministers of the G20 group of nations have dampened speculation of a currency war, as they gather for a meeting in Moscow. Finance ministers of the G20 nations meeting in Moscow may not criticise Japan for weakening the yen, a leaked draft communique has indicated.
The value of a country's currency has a big impact on its trade and there are fears countries are trying to influence markets to help boost their economies. The news sent the yen sharply lower, falling 1.5% against the dollar.
The Japanese yen has seen a big decline, while the euro has risen against a basket of currencies. Japan's new government has demanded looser monetary policy, causing the yen to fall 15% in value since September.
The G20 has previously asked nations to refrain from market intervention. The weak yen gives Japan's exporters a price advantage, raising fears of a "currency war" - competitive devaluations by other big exporters.
The value of a country's currency has a big impact on its trade and there are fears countries are trying to influence markets to help boost their economies. The draft wording, if it is adopted in the official communique, would mean the broader G20 group of nations agreeing to adopt a similar attitude towards Japan's policies as the G7 earlier this week.
The G20 has previously asked nations to refrain from market intervention. An unnamed G20 delegate was quoted by Reuters as saying: "There wasn't anybody putting Japan on the spot. That's quite frankly a bit of a surprise."
A leaked communique seen by Reuters suggests that Tokyo would not be singled out for criticism, as had been suggested. The G7, which includes Japan, said they would not set targets for the exchange rates of their currencies.
An unnamed delegate was quoted as saying: "There wasn't anybody putting Japan on the spot. That's quite frankly a bit of a surprise." As well as all of the industrialised nations of the G7, the G20 also comprises several major developing countries, including rival Asian exporting nations of Japan such as Korea and China.
Earlier this week, the G7 group of nations issued a statement saying they would not set targets for exchange rates of their currencies. China, and many other G20 countries, do limit the trading in their currencies and set targets for their exchange rates.
On Thursday, Anton Siluanov, finance minister of Russia, the host of the G20 meeting, said it, too, was likely to issue a similar communiqué. 'Beggar thy neighbour'
"The language may differ [from the G7], but the intent will remain the same," the minister was quoted as saying by the Reuters news agency. Since Prime Minister Shinzo Abe won elections in December, his new government has pushed the Bank of Japan (BoJ) into accepting much bolder monetary policies, including a doubling of its inflation target, in order to revive the country's moribund economy.
That was echoed by Germany's Finance Minister, Wolfgang Schaeuble, on German radio. He said he was confident of a joint agreement, expressing the official line. The Japanese authorities have not sought to intervene directly in the currency markets in order to influence the yen's value, and unlike many other Asian exporters, it has a fully convertible currency, meaning that anyone can buy or sell the yen, and its value is set by the currency markets.
"We do not want state intervention in exchange rates. We want exchange rates that are determined by the markets," he said. Instead, anticipation by the markets of Mr Abe's elections, and the resulting flood of newly-created yen from the central bank's change of attitude, has seen the yen fall steadily in recent months from all-time highs against the dollar and other major currencies, helping provide some relief to the country's beleaguered exporters.
The head of the European Central Bank, Mario Draghi, attempted to dampen talk about currency wars ahead of the meeting, by saying loose talk about currencies was "inappropriate, fruitless and self-defeating". The previously strong yen had contributed to Japan experiencing a trade deficit - importing more than it exports - since 2011, following decades of surpluses.
Slowing growth Other industrialised economies such as the US and eurozone have expressed unease that the weaker yen, which gives Japan a competitive advantage, could be used as an excuse by other exporter nations to intervene directly in the currency markets in order to weaken their own currencies.
The meeting comes at a time when some of the world's biggest economies and regions are still struggling to spur economic growth. Such "beggar-thy-neighbour" policies might leave convertible currencies such as the dollar, euro and pound painfully overvalued.
Figures released on Thursday showed that Japan, the world's third-largest economy, remains in recession.
Its gross domestic product (GDP) shrank 0.1% in the three months to the end of December, from the previous three months, the third straight quarter of contraction.
Meanwhile, the eurozone recession also deepened in the final three months of 2012.
This has led to fears that countries that continue to struggle may try to devalue their currencies in order to trigger growth.
A weak currency makes goods from a country, or region, in the case of eurozone, cheaper to foreign buyers and also boosts profits of firms when they repatriate their foreign earnings back home.
Overblown?
The fears have been stoked further by the recent movements of the yen and the euro, as well as by comments made by some senior leaders.
The yen has weakened more than 15% against the US dollar since November last year, after Japan took an aggressive monetary stance to try and stoke inflation and expanded a key stimulus measure.
Ahead of the G20 meeting, the Bank of Japan (BOJ) governor Masaaki Shirakawa said the central bank will continue to ease policy in the future.
"The BOJ is conducting monetary policy to achieve stability in Japan's economy. It will continue to do so," he said.
However, some analysts said that Japan was not moving to deliberately weaken its currency.
"There are countries within the G20 that actually set exchange rate targets. And that isn't what Japan is doing," said Frances Hudson, a strategist at Standard Life Investments."There are countries within the G20 that actually set exchange rate targets. And that isn't what Japan is doing," said Frances Hudson, a strategist at Standard Life Investments.
"Japan is doing what seems to be actions for economic reasons, such as tackling deflation," Ms Hudson added."Japan is doing what seems to be actions for economic reasons, such as tackling deflation," Ms Hudson added.
Ahead of the G20 meeting, the BoJ governor Masaaki Shirakawa said the central bank will continue to ease policy in the future.
"The BoJ is conducting monetary policy to achieve stability in Japan's economy. It will continue to do so," he said.
Overblown?
Meanwhile, another currency of concern has been the euro.
Recent data showed that, like in Japan, the eurozone recession also deepened more than expected in the final three months of 2012.
Some of the weakness of the eurozone economy has been blamed on a recovery in the value of the single currency area as the European banking and government debt crisis abated since last summer.
The euro has risen about 6% over the past six months. That increase has raised fears, amongst France in particular, that it will strangle growth further.The euro has risen about 6% over the past six months. That increase has raised fears, amongst France in particular, that it will strangle growth further.
Gerry Rice, a spokesman for the IMF, said that the talks of a currency war were "overblown". A stronger euro has undermined the competitive advantage of eurozone businesses in international trade.
The head of the European Central Bank, Mario Draghi, attempted to dampen talk about currency wars ahead of the meeting, by saying loose talk about currencies was "inappropriate, fruitless and self-defeating".
However, Mr Draghi had himself deftly talked down the value of the euro at a regular press conference last week, when he said that the central bank was "monitoring" the exchange rate.
Nonetheless, Gerry Rice, a spokesman for the IMF, said that the talks of a currency war were "overblown".
"Our multilateral assessment does not indicate very significant deviations from the fair value for the relevant currencies," he added."Our multilateral assessment does not indicate very significant deviations from the fair value for the relevant currencies," he added.