G-20 finance chiefs back aggressive easing regime


The Group of 20 economic powers has cautiously endorsed Japan’s huge monetary stimulus program, agreeing it was necessary to boost the country’s stagnant economy.

In a statement issued after their meeting wrapped up Friday in Washington, the G-20 finance chiefs said Japan’s policy actions “are intended to stop deflation and support domestic demand.”

That came in contrast to worries expressed by many countries, including the United States, that Japan could be deliberately trying to force the yen lower to boost exports and cut imports via “competitive devaluation.”

But the G-20 called for more efforts to stimulate “strong, sustainable and balanced” growth globally, and took note of Japanese efforts to do that.

Concluding the two-day meeting in Washington, the G-20 members again confirmed in a communique that they will refrain from competitive currency devaluation and that their monetary policies are being implemented for domestic purposes, as agreed during their previous meeting in Moscow in February.

Reflecting wariness about the potential for aggressive monetary easing to hurt their economies, including by luring massive fund inflows that could generate asset bubbles, the G-20 countries said they will be “mindful of unintended negative side effects stemming from extended periods of monetary easing.”

“I believe we have obtained the understanding of the global community,” Finance Minister Taro Aso said of the Bank of Japan’s experimental quantitative easing program after the meeting. He said the central bank’s unorthodox measures are in line with the G-20’s latest communique.

BOJ Gov. Haruhiko Kuroda, making his international debut as head of the bank, said the experimental program will be kept in place until its 2 percent inflation target is achieved in about two years, as he pledged when taking office last month.

“As we have won global understanding of our policy, we will be able to operate our monetary policy appropriately with more confidence,” Kuroda, a former president of the Asian Development Bank, said.

The chair of the G-20 meeting, Russian Finance Minister Anton Siluanov, said that “the latest decision on quantitative easing remedies the situation that was building up for years.”

At the same time, the group pledged not to compete on the currency front. “We will refrain from competitive devaluation and will not target our exchange rates for competitive purposes, and we will resist all forms of protectionism and keep our markets open,” they said in a statement.

On fiscal consolidation, meanwhile, the G-20 members urged both Japan and the United States to seek progress, clearly stating that “Japan should define a credible medium-term fiscal plan.” The previous communique had simply urged the two countries to “resolve uncertainties related to the fiscal situation.”

On the United States, the communique said the country needs further progress toward a balanced medium-term fiscal consolidation plan, although significant deficit reduction has already been achieved.

Aso said that he told the G-20 that Japan will draw up a medium-term fiscal consolidation plan by the middle of the year and that the government is determined to raise the sales tax as scheduled in April next year.

The G-20 members remained cautious about the global economy, saying that “growth has continued to be too weak and unemployment remains too high in many countries.” But the group also noted the world economy has avoided some major risks and that financial market conditions continue to improve.

The yen has been depreciating sharply against the dollar and euro over the past three months and is close to the passing the ¥100 line against the U.S. currency. The fall began when Shinzo Abe started to talk about forcing the BOJ to adopt aggressive monetary easing measures and setting a definite inflation target after becoming prime minister in December.

After Kuroda’s predecessor exited the BOJ prematurely, the unusually aggressive measures were launched earlier this month with the goal of doubling the money supply and increasing purchases of long-term Japanese government bonds and risky debt.

Although some emerging countries were concerned about negative spillover effects from developed countries’ monetary easing programs, including massive fund inflows and asset bubbles, they did not single out Japan’s program as a source of potential risks, a government official said in Tokyo.

There was not much discussion about exchange rates, including the yen’s recent depreciation, the official said, adding that the G-20 members shared the view that current movements reflect economic fundamentals.

However, on the sidelines of the G-20 meeting, the group of 24 emerging economies including India and Mexico explicitly addressed the risks of monetary easing in a communique, urging the International Monetary Fund and World Bank “to be more active in pursuing greater coherence in global economic policymaking.”

“We call on advanced economies to take into account the negative spillover effects on emerging markets and developing countries of prolonged unconventional monetary policies, including on inflation and the volatility of capital flows and commodity prices,” it said.

Among other issues, the G-20 members said they will remain committed to agreeing on completing IMF reforms by next January to give emerging members more power within the multilateral lender, the communique said.

Representing around 80 percent of global gross domestic product, the G-20 groups the economies of 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.