Finance Minister Kiichi Miyazawa and Bank of Japan Gov. Masaru Hayami will join their Group of Seven counterparts for a meeting in Prague on Saturday that will inevitably focus on soaring oil prices, the euro’s weakness and the potential damage these trends pose for the world economy.
Although the G7 finance ministers and central bankers may express concern over the issues, the specific steps the G7 will agree on to correct the problems remain unclear, Miyazawa told reporters.
The gathering is scheduled to take place in the Czech capital Saturday, followed by a series of subcommittee meetings of the World Bank and the International Monetary Fund. The series of meetings will be wrapped up by the joint annual general assembly of the two financial bodies on Tuesday.
For his part, Miyazawa intends to tell the G7 meeting that Japan is ready to demonstrate as much flexibility as possible to deal with the oil and euro problems.
Even though Japan has not been noticeably affected by the problems so far, “There is no doubt that soaring oil prices, if they affect Southeast Asian economies, could have a negative impact on the Japanese economy as well,” Miyazawa told a recent news conference. “In this sense, it is not someone else’s problem.”
In fact, soaring oil prices do seem to be affecting Japanese consumers. On Wednesday, Keiichiro Okabe, chairman of the Petroleum Association of Japan, told reporters that the annual cost of gasoline and kerosene per household may increase by 30,000 yen if oil prices keep rising at the current pace.
Earlier this week, crude oil prices for October delivery rose 96 cents to a new 10-year-high of $36.88 on the New York Mercantile Exchange, as traders remained skeptical that a decision by the Organization of Petroleum Exporting Countries to increase output would quickly resolve the problem.
It is believed, however, that the G7 alone will not be able to stabilize oil prices, as such steps will require not only careful balancing of supply and demand but also effectively dealing with speculative capital on the oil market.
“It is possible for the G7 to address concerns over oil prices, but uncertainties will remain,” Miyazawa said, indicating that the G7 has few specific options to stabilize the prices. “The efficacy of OPEC’s agreement to increase output by 800,000 barrels per day is also doubtful.”
Regarding the euro, Miyazawa said he will consult his G7 counterparts over what measures Japan should pursue to maintain the balance among the European Union’s single currency, the yen and the dollar.
But here again, the G7 is unlikely to take concerted steps to stabilize the euro. Last week in London, European Central Bank President Wim Duisenberg said the G7 would not come up with major initiatives like the 1985 Plaza Accord, which dramatically changed currency trends.
Apart from those imminent concerns, Miyazawa is expected to demonstrate Japan’s commitment to quickly achieving a self-sustained economic recovery. He is to explain Tokyo’s latest decision to compile a fiscal 2000 extra budget to finance a fresh stimulus package, the size of which is expected to exceed 10 trillion yen.
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