G7 fails to mention appreciation of yen

Kyodo

Japanese Finance Minister Kiichi Miyazawa on Saturday played down the omission of concern about the yen’s strength in the Group of Seven communique.

The G7 made specific remarks about the yen’s appreciation at its meetings in September and January.

“The view that the G7 has concerns over the strong yen is unchanged from the previous meetings,” Miyazawa said. “The Japanese economy is at the bottom and has the power to pull itself up. There is no cause for worry, because it has gained the power to recover.”

As to the possibility that the yen might surge against major currencies this week, Miyazawa said, “I am not worried, but it is natural to take measures, if necessary.”

A surge by the yen could smother the budding recovery by making exports more expensive in dollar terms and reducing the value of overseas earnings in yen terms.

The G7 said in its statement the Japanese economy “has not yet achieved a secure recovery in private demand” and that “it is important that macroeconomic policies support sustainable domestic demand-led growth.”

The communique also pointed to the importance of Japan continuing structural reforms to expedite an increase in productive potential and the restructuring of the financial sector.

At Saturday’s meeting, Japan also confirmed it will continue its easy monetary policy.

“Japanese authorities decided to continue, in the context of their zero-interest policy, to provide ample liquidity to ensure that deflationary concerns are dispelled,” said the communique.

Whether Japan pledges to maintain its monetary policy until deflation fears disappear was one of the key topics at the meeting.

Bank of Japan Gov. Masaru Hayami had indicated Wednesday that the BOJ’s 14-month-old policy of driving the unsecured overnight call money rate to around zero might end before the end of this year.

But his remarks drew criticism from the United States and the International Monetary Fund, which are skeptical about the strength of Japan’s economic recovery.

“The communique reflects our common view, including the view of the Japanese representatives,” U.S. Treasury Secretary Lawrence Summers said Saturday. “I am certainly comfortable with the content of the communique.”

Miyazawa was also quoted as saying he has no worries about the impact of the plunge on Wall Street on the Japanese economy.

Miyazawa is believed to have told his G7 colleagues that Japan’s record 84.99 trillion yen national budget for fiscal 2000, which started April 1, attests to the government’s firm commitment to fiscal stimulus.

As for exchange rates, “We emphasized our view that exchange rates among major currencies should reflect economic fundamentals,” the communique said.

“We will continue to monitor developments in exchange markets and cooperate as appropriate,” it said.