/

G-20 to be given explanation on monetary easing

Kuroda, Aso to try to assure that lowering yen 'not main objective' of aggressive BOJ action

by Mie Sakamoto

Kyodo

Japan aims to seek global understanding of its aggressive monetary easing at this week’s meeting of Group of 20 finance chiefs to ease possible concerns about the yen’s recent steep fall and negative effects that could spill over to other economies.

Bank of Japan Gov. Haruhiko Kuroda and Finance Minister Taro Aso are likely to explain that the bank’s drastic easing steps are intended to shore up the domestic economy and to reaffirm that Japan will refrain from competitive devaluation as agreed to at the previous G-20 meeting in February.

Kuroda, who will make his international debut as BOJ chief at the meeting starting Thursday in Washington, is expected to say the BOJ’s new easing steps are aimed at achieving its 2 percent inflation target to beat prolonged deflation and will eventually have favorable effects on the global economy.

Aso is expected to make clear the government’s commitment to restore fiscal health as Japan and the United States were urged by other G-20 finance chiefs at the previous meeting in Moscow to resolve uncertainties over their fiscal situations.

The finance chiefs are likely to basically confirm that they will refrain from competitive devaluation and not target exchange rates for competitive purposes as agreed in the Moscow meeting.

The BOJ’s fresh easing measures outlined earlier this month feature enhanced purchases of long-term Japanese government bonds. The move sent the dollar close to the ¥100 line recently, which could spark criticism from emerging countries at the meeting that Japan is trying to manipulate its currency to drive the yen lower to boost exports.

Some may also warn that Japan’s bold monetary easing policy could cause a massive flow of funds to and invite unwanted inflation in emerging markets.

South Korean Strategy and Finance Minister Hyun Oh Seok has voiced concern about Japan’s monetary policy, saying it is affecting the economies of South Korea and other parts of Asia.

“Discussion is necessary if the economic policy of one country causes an impact on other countries,” Hyun said in a news conference with foreign media earlier this month.

The dollar traded in the upper ¥97 range Wednesday morning after climbing as much as ¥7 after the BOJ announced the easing measures to reach a four-year high of ¥99.95 last week. It was around ¥80 in November.

The United States, in its semiannual currency report released last week, indicated wariness about the prospect of a further depreciation of the yen.

“We will continue to press Japan to adhere to the commitments agreed to in the G-7 and G-20, to remain oriented toward meeting respective domestic objectives using domestic instruments and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes,” it said.

On the sidelines of the two-day meeting, Aso is expected to meet U.S. Treasury Secretary Jack Lew to explain Tokyo’s economic policies. The two countries are also arranging a meeting between Aso, who concurrently serves as deputy prime minister, and Vice President Joe Biden.

The goal of Japan’s economic and monetary policies is “to pull the economy out of a deflationary recession” and any fallout from those policies is “not our main objective,” Aso said at a news conference Tuesday, displaying his intention to seek understanding of the BOJ’s easing program at the G-20 gathering.

Some participants may also voice concern about possible negative spillover effects on their bond markets after the BOJ’s easing measures to boost the purchase of long-term government bonds made the domestic bond market turbulent.

“The effects of heightening volatility in Japanese government bonds often spread to overseas markets,” said Takatoshi Kato, a former vice finance minister for international affairs.

“Japan could be urged to deal with fiscal consolidation in order to prevent such risks from coming to the surface,” said Kato, who is now president of the Japan Center for International Finance.

Aso, who served as prime minister at the time the collapse of Lehman Brothers Holdings Inc. in 2008 triggered the global financial crisis, is expected to make efforts to ease fears that Japan’s massive bond sales to fund stimulus steps could further deteriorate its fiscal situation, which is already the worst among major developed nations.

He also plans to deliver a speech Friday in Washington to describe Prime Minister Shinzo Abe’s economic policies. Dubbed “Abenomics,” they center on bold monetary easing by the central bank, flexible budget spending by the government and growth strategies to boost private-sector investment.

On the global economy, the G-20 finance chiefs may note that there are still risks to a recovery following the financial crisis in Cyprus and slower than expected growth in China’s gross domestic product in the January-March quarter.

Representing about 80 percent of GDP, the G-20 groups Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States and the European Union.