SENDAI – Finance ministers and central bank chiefs from the Group of Seven developed nations kicked off the first day of their meeting in Sendai on Friday unable to find common ground on how to boost the global economy in a coordinated manner.
“There are countries that can and can’t use government spending, depending on their own reasons,” Finance Minister Taro Aso told reporters soon after the first meeting ended. “We know we can’t force them to do it.”
The gap stems from how much room they have in their budgets, or the kinds of regulations they have, Aso explained. “For G-7 countries, the most serious point is we don’t have enough demand,” he added.
To boost demand, what they all understood was the need to use all kinds of options, monetary and fiscal, as well as structural reforms, he said.
The finance chiefs discussed efforts to revitalize the world economy, the first item on the agenda for the two-day meeting. Though a recovery is ongoing, uncertainties remain over the outlook for global growth.
Aso said he told his counterparts that the G-7 has to pay close attention to the downside risks facing the world economy, including geographical tensions related to terrorism and refugee crises. This also includes Britain’s possible exit from the European Union, he said.
Japan, which is hosting the gathering this year, has so far relied on monetary easing to stimulate domestic demand and sought to use this opportunity to urge its counterparts to undertake fiscal stimulus measures in concert.
But senior officials with knowledge of the negotiations have admitted that each country has different tools when it comes to stoking the flames of demand. Germany, for instance, maintains tight fiscal discipline and remains reluctant to boost spending.
Others, too, are loathe to employ fiscal measures, believing that the risk to the global economy has receded somewhat in recent months. The strong worries over China’s economic growth that opened the year have eased, and the plunge in oil prices has partly recovered.
Stances also differ widely between Japan and the United States over recent volatile moves in the yen and the dollar, which affects Japanese exports.
Finance Minister Taro Aso has reiterated in the past weeks that Japan is ready to intervene in the currency market, declaring that such a move would be justified by Group of 20 agreements. G-20 communiques in Shanghai in February and in Washington in April affirmed that “disorderly movements in exchange rates can have adverse implications for economic and financial stability.”
But the U.S. Treasury has responded negatively to the idea of Japan massaging the yen. Treasury Secretary Jack Lew has said Japan needs to focus on domestic demand, and called moves in the foreign-exchange market “orderly.”
At Friday’s meeting in Sendai, the G-7 members re-acknowledged the negative impact of disorderly movements and said they will refrain from competitive devaluations, Aso said.
Ahead of Friday’s kickoff, the G-7 financial leaders discussed the future of the global economy with noted economists, including Nobel laureate Robert Shiller, a professor at Yale University, and Martin Feldstein, a professor at Harvard University.
Japanese economists including Takatoshi Ito, a professor of international and public affairs at Columbia University, and Kazuo Ueda, professor of economics at the University of Tokyo and a former Bank of Japan Policy Board member, were also invited.