G7 to discuss yen’s value in relation to weakening euro

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Finance Minister Kiichi Miyazawa and Bank of Japan Gov. Masaru Hayami will attend a Washington meeting Saturday with their counterparts from the Group of Seven industrial nations at a time when Japan’s economy is showing possible indications of recovery from its worst postwar recession.

Topics on the agenda are expected to include the potential harm the yen’s appreciation would cause Japan’s fragile economy; U.S. stocks, which some consider overvalued; and the weakening of the euro.

Other likely topics include reform of the International Monetary Fund, which named a new chief last month, and Japan’s additional debt-relief plan for heavily indebted poor countries, mostly in Africa.

The G7 conference will be held immediately before half-yearly meetings of the IMF and World Bank committees. The G7 members are Britain, Canada, France, Germany, Italy, Japan and the United States.

Miyazawa is expected to tell the meeting that Japan’s economy is showing signs of recovery, referring to an expansion in plant and equipment investment by companies.

He will probably also admit that personal consumption, which accounts for 60 percent of Japan’s gross domestic product, may remain sluggish for the time being because of corporate restructuring.

The United States is less optimistic about the Japanese economy, partly because Japan’s GDP fell for the second consecutive quarter through December. U.S. Treasury Secretary Lawrence Summers said Monday that Japan “needs to use all the tools of macroeconomic and structural policy” until a self-sustaining recovery takes hold.

Miyazawa has said the government will not need to extend its spending spree in fiscal 2000, which started this month, to stimulate domestic demand. He expects the 85 trillion yen initial budget, the largest ever, will suffice and does not want to increase the already huge government debt.

Hayami suggested Wednesday the BOJ’s zero-interest rate policy may be lifted by the end of the year because of the economic recovery. This unusual policy, continued since February last year, is intended to assist firms by cutting borrowing costs.

Miyazawa has been warning against any excessive rise in the yen’s value since last year, saying a strengthened currency could derail the economy.

A strong yen hurts Japanese exporters by raising the prices of their goods abroad and making them less competitive. Their foreign currency-based revenues will also suffer after they are brought home and converted into yen.

In the previous two meetings, in September and January, the G7 issued a statement saying the yen’s rise could pose a threat to the Japanese and world economies. Joint statements including such a clause are considered helpful in preventing a surge in the yen’s value against the dollar.

Miyazawa said earlier this week that Japan’s position on the yen remains unchanged, although he did not seem as desperate as he was before the January meeting. He said the issue would probably be raised but not at his instigation.

Yen discussions will probably be linked to the euro, which has depreciated considerably against both the dollar and the yen. While there is concern that a weak euro may cause inflation in Europe, it is also helping boost European exports.

Complicated negotiations are expected on what format the G7 minister’s joint statement on currency issues will take. Many expect that if the danger of a strong yen is not mentioned, it could trigger a yen-buying rush.

The U.S. stock market meanwhile remains a source of concern to those who think it is overheated and may crash. Gradual interest rate increases by the U.S. Federal Reserve Board have only recently had a limited impact in squelching some share prices.

Among a wide rage of issues concerning the IMF, Miyazawa is expected to argue that Asian countries should have more voting power to better reflect their economic power.

He made a statement on the problem when Japan withdrew its nomination of its own candidate for the IMF’s top position in March. Horst Koehler of Germany was named IMF managing director.

Tokyo announced Monday it would waive all outstanding loans for unofficial development assistance for eligible poor countries as part of an international debt-relief initiative that was adopted at last year’s G7 summit in Cologne, Germany. Miyazawa is expected to explain the decision at the meeting.