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G-20 Forum to Be Colored by Rhetoric on Currency U.S. Signals Support for Japan's Yen Policy
(about 9 hours later)
MOSCOW — The debate over a currency war arrived in Moscow on Friday as finance officials from the Group of 20 leading economies sparred over Japan’s proposed expansive policies, which have driven down the value of the yen. MOSCOW — Ben S. Bernanke, chairman of the U.S. Federal Reserve, on Friday strongly indicated that the Group of 20 industrialized nations did not intend to censure Japan for weakening its currency over the past several months, something that has aided Japanese exporting companies and angered its competitors.
The G-20 forum, which put together a huge financial backstop to halt a market meltdown in 2009, is back in the spotlight after a week in which the Group of 7 rich nations tried, and spectacularly failed, to speak on currencies with one voice. Mr. Bernanke, who has advocated loose monetary policy in the United States to stimulate the economy, suggested that distinctions should be drawn among the reasons a country was pumping money into its system, which could in turn weaken its currency.
The G-7 has long been the powerhouse of financial diplomacy. But tension between Washington and Tokyo has risen over a bid by Prime Minister Shinzo Abe of Japan to end two decades of deflation. “The United States is using domestic policies to advance domestic agendas,” Mr. Bernanke said in brief introductory remarks at a conference in Moscow of the G-20, a club of the world’s wealthiest countries. “We believe that by strengthening the U.S. economy, we are helping to strengthen the global economy as well. We welcome similar approaches by other countries.”
The G-7 issued a joint statement Tuesday reaffirming “our longstanding commitment to market-determined exchange rates.” But the show of unity was quickly undermined by separate background comments to the news media criticizing Japan. The comments come after a statement by the Group of 7 industrialized countries issued this past week caused turmoil in currency markets by suggesting that they would take a collective stand against any country that was intentionally weakening its currency.
Russia, as host of the talks, says the G-20 — which includes leading emerging nations alongside rich countries and accounts for 90 percent of the world economy — will back the thrust of the G-7 text when the larger group issues its communiqué, expected Saturday. At issue is a stimulus program under way in Japan to revive the country’s economy, which was begun last autumn by Prime Minister Shinzu Abe, who advocates supporting Japanese manufacturers through loose monetary policy. As a result, the yen has lost about 20 percent of its value against the dollar, meaning products produced in Japan, like some Sony electronics or models of Toyota cars, are relatively less expensive.
Deputy Finance Minister Sergei Storchak of Russia said that discussion of a draft statement was proving “difficult” but that the final text would not single out Japan for criticism. Japan’s maneuver touched off fears that other countries and the European Union might follow suit in a so-called currency war, or competitive devaluations, which has been the main topic of the G-20 meeting here on Friday and Saturday.
“There is no competitive devaluation, there are no currency wars,” Mr. Storchak said. “What’s happening is market reaction to exclusively internal decision making.” Mr. Bernanke said he endorsed an earlier statement at the meeting from Christine Lagarde, the director of the International Monetary Fund, who stated that the risk of a currency war was “overblown.”
On Friday, Mario Draghi, the European Central Bank president, criticized the debate on currencies. “All this chatter that has been undertaken in the past few weeks is either inappropriate or fruitless — in all cases it’s self-defeating,” he said. Initially, it seemed that the world’s largest economies might agree on a firm statement at the end of the G-20 summit meeting to condemn a currency war. That tactic is now widely seen as harming a global recovery, and is understood to be a cause of the lingering depression in the 1930s.
When the G-20 last met, in November, its statement included a call to “refrain from competitive devaluation of currencies.” Tokyo took the omission of a similar warning by the G-7 in the past week to mean that its policies had won a free pass. The Japanese central bank has agreed to pursue unlimited monetary easing — the manipulation of asset purchases and money supply — until its inflation target of 2 percent has been met. But Reuters, citing an official that had seen a draft G-20 statement, reported earlier Friday that the communiqué did not single out Japan for censure.
“As the G-20 meeting in Moscow gets under way, the battle lines are drawn — it isn’t G-6 against Japan as much as it is G-7 against G-13,” analysts at the French bank Société Générale wrote in a research note. In her statement to the group, Ms. Lagarde said the recovery in the global economy had become unbalanced. Developed nations are struggling to grow, while emerging markets have bounced back quickly after the financial crisis of 2008-9. Those countries, including Russia, have been critical of developing nations’ stimulus efforts. But Ms. Lagarde defended Japan’s efforts to weaken the yen, saying it was “sound policy.”
The yen has fallen about 20 percent since November, when it became clear that Mr. Abe was likely to become prime minister, causing a rally in Japanese stocks that the government hopes, will start growth by encouraging savers to spend and companies to invest. “The international monetary system can function effectively if each country follows the right policies for their domestic economies,” she said. That, in turn, should lift the tide of the global marketplace, she said.
Russian officials note that Japan has not intervened on currency markets to weaken the yen, suggesting that Tokyo would not be singled out as a miscreant. Ms. Lagarde did caution that too bald a ploy to prop up exports would not count as a justified weakening of a currency.
Germany’s finance minister, Wolfgang Schäuble, offered a contrarian view, saying that countries should not count on easy monetary policy to help reduce their deficits over the long term while avoiding steps to reduce spending.
The Russian finance minister, Anton Siluanov, the host of the meeting, has also been pushing for the forum’s final communiqué, which is expected Saturday, to include a strong statement against competitive devaluations. Mr. Siluanov said in his opening remarks that a statement allowing markets to set exchange rates would find “a place in the communiqué.”