SHANGHAI – The Group of 20 finance chiefs confirmed their intention to do their utmost to stabilize financial markets at their two-day meeting in Shanghai over the weekend, but it remains to be seen if policy coordination will go smoothly as challenges differ from country to country.
Concerns about China’s economic slowdown, one of the major factors behind the recent financial market turmoil, have still not been wiped out. Meanwhile, Japan and Germany remain cautious about further fiscal spending.
A communique issued by the finance ministers and central bank chiefs of the 20 advanced and emerging economies said, “We will use all policy tools-monetary, fiscal and structural-individually and collectively” in order to maintain and strengthen economic growth.
The G-20 members even incorporated a sentence that says, “We will consult closely on exchange markets,” after last-minute negotiations, according to officials involved in drafting the document.
At the G-20 talks, Finance Minister Taro Aso underscored the importance of member economies sincerely tackling their policy challenges.
In particular, he asked China to show the structural reform steps it would take in the medium term, including the elimination of overcapacity, and steps to stabilize the yuan.
But Chinese Finance Minister Lou Jiwei proposed the creation of a system to have member economies mutually assess progress in implementing reform measures, stressing that structural reforms are a common issue for the G-20.
The United States has been asking Japan and European countries to use fiscal stimulus. But Aso said the Japanese government’s fiscal 2015 supplementary budget was enacted in January, and sounded reluctant to take additional fiscal steps.
At a news conference after the two-day meeting, Aso said that quickly enacting the fiscal 2016 full budget that is now under deliberation will be Japan’s most effective economy-boosting measure.
German Finance Minister Wolfgang Schaeuble, shortly before the G-20 meeting, brushed aside the need for fiscal stimulus.
The G-20 communique seems to be insufficient also because specific measures to address the massive outflows of funds from emerging economies were left to future discussions.
The G-20 officials decided to strengthen the monitoring of capital outflows and promote discussions on countermeasures at a working group.
But the work could be tough because regulating fund outflows is also seen as having the potential to lead to a drop in inflows of fresh capital to emerging economies.
During the G-20 meeting, China said it plans to unveil more specifics of its economic policy direction, in particular with regard to structural reforms, next week when the top legislature, the National People’s Congress, holds an annual session, said the officials, who spoke on condition of anonymity.
The G-20 session came soon after the Bank of Japan adopted its first negative interest rate policy on Feb. 16.
BOJ Gov. Haruhiko Kuroda explained that the policy is aimed at helping the central bank achieve its 2 percent inflation target, not at guiding the yen lower.
The new BOJ policy did not draw criticism, apparently because the yen has been rising instead of falling due to safe-haven purchases that reflect China’s slowing growth and slumping crude oil prices.
Izuru Kato, chief economist at Totan Research Co., noted that the negative-rate policy’s yen-weakening effect has not been evident.
Kuroda has repeatedly said the BOJ will lower interest rates further into negative territory if needed.
In this regard, Kato cautioned against the possibility of the BOJ policy triggering competitive currency devaluations.