Global finance chiefs signaled Japan has scope to keep stimulating its stagnant economy as long as policymakers cease publicly advocating a sliding yen.
The message was delivered during weekend talks involving finance ministers and central bankers from the Group of 20 in Moscow. While they pledged not “to target our exchange rates for competitive purposes,” Japan wasn’t singled out for allowing the yen to drop and won backing for its push to beat deflation.
“There was no censure of the Japanese attitude, which was considered a policy to develop its economy and not to intentionally devalue,” Brazilian Finance Minister Guido Mantega told reporters after the meeting. South Korean Finance Minister Bahk Jae Wan said “comments suggesting specific levels of foreign-exchange rates should be dealt with caution.”
Prime Minister Shinzo Abe told the Diet on Monday that there’s no reason for him to make such comments.
The G-20′s harder line on exchange rates was adopted after the yen’s 8 percent slide against the dollar this year raised concern Japan is starting a currency war, in which countries seek to protect exports through devaluation. The agreement, hashed out at all-night talks beside the Kremlin, now leaves Japan free to try to revive its economy while putting pressure on officials to avoid explicitly targeting a cheaper yen.
That probably means the Japanese currency will continue depreciating in the near term below the 93.50 per dollar it reached at the end of last week, said Jan Dehn, London-based cohead of research at Ashmore Investment Management Ltd., which manages $71 billion.
Nomura Holdings Inc. Monday reaffirmed a forecast that it raised Thursday for a 2 percent expansion for Japan’s economy in the fiscal year starting in April. The government estimates an expansion of 2.5 percent.
Gross domestic product shrank an annualized 0.4 percent in the last quarter, the Cabinet Office in Tokyo said Thursday.
“It will take a while for exports to increase on the back of a weaker yen,” said Tomo Kinoshita, an economist with Nomura in Tokyo. He added that Japan’s choice of a central bank governor to replace Masaaki Shirakawa, due to stand down next month, will have a bigger influence on the currency than the G-20 statement.
The yen was 0.5 percent weaker at 10:12 a.m. in Tokyo at 93.95 per dollar. The Nikkei 225 stock average was up 1.9 percent, trading at 11,391.10.
The G-20 is “saying there isn’t exchange rate manipulation by Japan and everything they’re doing is interpreted to be aimed at getting domestic growth going,” Ashmore’s Dehn said Saturday by phone. “The yen can continue to weaken.”
The yen has fallen as Abe campaigned for looser monetary policy to revive an economy plagued by 15 years of deflation and three recessions in the past five years.
Since Abe’s party returned to power in December’s general election, the Bank of Japan has agreed to a 2 percent inflation target and to make open-ended asset purchases from 2014.
Australian Treasurer Wayne Swan told Bloomberg Television that meddling with currency values hurts economic growth. China is the biggest G-20 member to manage its exchange rate.
“Market-based exchange rates, fiscal and monetary policies supporting jobs and growth — that’s the core of the G-20 agenda,” Swan said. “To have people artificially target their exchange rates completely repudiates that approach.”
Canadian Finance Minister Jim Flaherty said talk alone of a currency war was “contributing to the uncertainty that is holding back stronger growth.”
Japanese officials in Moscow denied driving down their currency, arguing that its weakness was a byproduct of their effort to revive the world’s third-largest economy, which would benefit trading partners.
“We stick on the policy and consequently it’s happened,” Finance Minister Taro Aso told Bloomberg Television on Friday. “But that is not our target. Our target is to get out of the recession and deflation. That is our main purpose.”
Aso also said a rebound in Japan would “have a positive impact on the global economy.”
The Bank of Japan’s measures “have been and will remain” targeted at achieving a “robust economy through stable prices,” BOJ chief Shirakawa said. The G-20 statement is “absolutely in the same spirit of our monetary policy.”
The Japanese defense echoes that made by U.S central bankers against criticism from emerging-market officials such as Brazil’s Mantega for stimulus that has then undermined the dollar and lifted other currencies.
In a nod to such complaints, the G-20 members agreed to monitor and minimize any “negative spillovers” and said that monetary policy should always be aimed at domestic needs, according to a statement issued after the talks wrapped up Saturday.
Developed nations should “pay attention to the effects their monetary policies have on external markets,” Chinese Vice Finance Minister Zhu Guangyao told the state-run Xinhua news service from Moscow.
Federal Reserve Chairman Ben Bernanke said Friday in Moscow that Washington has deployed “domestic policy tools to advance domestic objectives,” adding that bolstering the U.S. economy will support world growth.
Still, unlike their U.S. counterparts, Japanese officials, including Abe, have commented publicly on their currency’s exchange rate, fanning speculation that they welcome its fall and that the yen’s weakness plays a part in their recovery strategy.
Lawmaker Kozo Yamamoto, of the ruling Liberal Democratic Party, who is close to Abe, said in an interview Thursday that it would be “appropriate” for the yen to trade at about 95-100 to the dollar. Deputy Economy Minister Yasutoshi Nishimura said on Jan. 24 that it wouldn’t be a problem if the exchange rate reached 100.
U.S. Treasury Undersecretary Lael Brainard used a speech in Moscow to criticize “loose talk about currencies.”
“What’s best for the Japanese government is to stop making comments on the level of foreign exchange rates,” said Yoshikiyo Shimamine, chief economist at Dai-Ichi Life Research Institute in Tokyo. “Yen depreciation is an unavoidable side effect of easy monetary policy. It’s desirable to just leave the currency market alone.”
The G-20 also said that while the risks to the world economy have receded, growth remains too weak and unemployment is too high in many countries.
Given the concern about the outlook for global growth, advanced nations accepted a U.S. proposal not to set new fiscal targets to replace those they agreed on in 2010 and which many of them are on course to miss. They promised instead to develop “credible medium-term fiscal strategies,” the statement said.
The group also pledged to work together to curb multinational companies’ leeway to shift profits to low-tax countries, endorsing an initiative spearheaded by the U.K, France and Germany.
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