G-7: Japan playing by currency rules as it stimulates economy
AYLESBURY, England — Japan convinced its partners in the Group of Seven leading industrial economies Saturday that it was not manipulating its currency as part of a bold attempt to get its economy out of a near two-decade period of stagnation.
At the conclusion of a two-day meeting of leading financial representatives from the G-7 countries — the U.S., Germany, France, Italy, Japan, Canada and the U.K. — host British Treasury chief George Osborne said there was a formal acknowledgment that each member needed to secure their own countries’ growth by balancing austerity measures with growth-enhancing policies.
The global recovery from recession over the past few years has been patchy. While the U.S. economy, the world’s largest, appears to be gaining traction, many European countries are in recession.
“The will is still there to reduce the deficits, but there is certainly a change of tone,” said Pierre Moscovici, France’s finance minister, at the conclusion of the summit.
Japan, the world’s No. 3 economy, has been in focus over recent months as the new government of Prime Minister Shinzo Abe has embarked on a radical policy of aggressive monetary stimulus to restart the country’s postwar boom, which effectively ground to a halt in the early 1990s.
One of the offshoots of pumping more money into the Japanese economy has been a dramatic fall in the value of the yen. On Thursday, the dollar rose above 100 yen for the first time in more than four years.
As well as potentially boosting economic growth by making its exports more competitive, the flipside of a lower yen is that it can also stoke inflation by increasing the price of imports. For a country that’s seen prices fall for much of the past 15 years, that’s important.
The rapid slide in the value of the yen has sparked fears of a “currency war” — where countries use their exchange rates as an econom- ic weapon.
If other countries respond to the falling yen by debasing their currencies, Japan will be back at square one and the world economy could suffer. Sharp fluctuations in the value of currencies can hurt business confidence and investment.
So far, the argument presented by Japanese officials — that it has been targeting monetary stimulus and not its exchange rate — has been accepted by Japan’s G-7 partners.
Britain’s Osborne said the G-7 countries all agreed to make sure that “policies are oriented towards domestic objectives.”