PARIS — Japan’s efforts to highlight concerns of a global deflation and the impact of a cheap Chinese currency on the global economy fell flat at the meeting of Group of Seven financial chiefs.
In the face of the far bigger and more immediate concern of a potential war in Iraq and its impact on the fragile global economy, the Japanese pitch apparently received little attention from Japan’s G7 partners.
Japanese Finance Minister Masajuro Shiokawa admitted after the two-day G7 meeting Saturday that the proposal to address signs of persistent price falls on a global scale did not arouse interest among the top G7 financial officials.
“Europe does not seem to feel much in the way of deflationary trends. The U.S. is not in a state of serious deflation either,” Shiokawa said at a news conference, when asked about the response to his proposal.
“The country that is feeling the issue of global deflation strongly is Japan,” he said.
Japan is the only G7 country suffering from full-fledged deflation, although economists have pointed to risks of price falls in other developed countries, such as Germany, where the economy has been stagnant.
Hence, Japanese government officials have argued that if stubborn price falls grip other parts of the world, it could impede worldwide growth for a long time.
“The topic was unlikely to receive attention from other countries to begin with, since they are not experiencing such price falls,” a senior Japanese government official said on condition of anonymity.
“As expected, discussions on the topic were not held at length. But there may be some meaning in the fact that the subject was raised at all, to note that there are such risks,” the official said.
Japan’s G7 colleagues — Britain, Canada, France, Germany, Italy and the United States — were similarly cool to Shiokawa’s call for a change in China’s dollar-pegged currency regime, which keeps the yuan in a tight range against the dollar, although the minister said he had won at least some support.
“I said that countries that are members of the World Trade Organization and are liberalizing trade should also liberalize their foreign exchange systems,” Shiokawa said.
Shiokawa said that there was “much debate” on the topic in the G7 talks, and that there were views that such “liberalization” should be promoted.
Although he did not mention China by name, his recent calls for foreign exchange liberalization have been interpreted as referring to his concerns about China’s currency exchange system.
A Japanese government official said that Shiokawa named China when making his point in the G7 talks.
Japan is becoming increasingly alarmed by the depreciation of the Chinese yuan, which boosts Chinese exports. Some blame the flood of imports from China as aggravating deflation.
Shiokawa has said in the past that the yuan was undervalued given China’s economic fundamentals, and should be revalued or floated.
Former Vice Finance Minister for International Affairs Haruhiko Kuroda has said China is exporting deflation by continuing with the currency system when Japan’s economy is facing deflationary pressure.
U.S. manufacturers also have a lot to lose with the depreciation of the yuan, since it would be deprived of a competitive gain in the market.
But the issue appears to have left little impression on U.S. Treasury Secretary John Snow.
“That issue did not come up at any of my discussions,” Snow told a news conference after the G7 talks, when asked about the topic.
Neither the Chinese yuan nor Japan’s concerns about global deflation was mentioned in the communique that the G7 finance ministers and central bankers issued at the end of their meeting.
G7 brings ‘fresh air’
PARIS (Kyodo) Bank of Japan Governor Masaru Hayami said Saturday that despite the uncertainties over a war in Iraq, he felt there was reason for optimism in debate at the Group of Seven meeting.
“I felt the gust of fresh air” in the discussions, Hayami said at a news conference held shortly after the two-day meeting. “I felt a brightness.”
Hayami said he felt upbeat when U.S. financial officials assured their G7 partners that the American economy would grow even though the Iraq crisis is a source of worry at the moment.
Hayami said he was also heartened by remarks by European financial officials that although there were some areas of slowdown, the overall economy remains firm.
“I explained myself that things are very different in Japan from last year,” in terms of financial market stability, Hayami said.
Hayami is scheduled to leave his post next month after having served five years in office.
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