G20: Yen Devaluation Is Ok, Just Don’t Talk Publicly About It (Feb 2013)


Source: Bloomberg – G-20 Signals Support for Japan Stimulus Without Yen Talk

Notable excerpts:

Global finance chiefs signaled Japan has scope to keep stimulating its stagnant economy as long as policy makers cease publicly advocating a sliding yen.

The message was delivered at weekend talks of finance ministers and central bankers from the Group of 20 in Moscow. While they pledged not “to target our exchange rates for competitive purposes,” Japan wasn’t singled out for allowing the yen to drop and won backing for its push to beat deflation.

“There was no censure of the Japanese attitude, which was considered a policy to develop its economy and not to intentionally devalue,” Brazilian Finance Minister Guido Mantega told reporters after the meeting. South Korean Finance Minister Bahk Jae Wan said “comments suggesting specific levels of foreign-exchange rates should be dealt with caution.” Japanese Prime Minister Shinzo Abe told Japan’s parliament today that there’s no reason for him to make such comments.

The G-20’s harder line on exchange rates was adopted after the yen’s 8 percent slide against the dollar this year raised concern Japan is starting a currency war, in which countries seek to protect exports through devaluation. The agreement, hashed out at all-night talks beside the Kremlin, now leaves Japan free to try to revive its economy while putting pressure on officials to avoid explicitly targeting a cheaper yen.

The G-20 is “saying there isn’t exchange rate manipulation by Japan and everything they’re doing is interpreted to be aimed at getting domestic growth going,” Ashmore’s Dehn said Feb. 16 by phone. “The yen can continue to weaken.”

The yen has fallen as Abe campaigned for looser monetary policy to revive an economy plagued by 15 years of deflation and three recessions in the past five years.

Since Abe won elections in December, the Bank of Japan has agreed to a 2 percent inflation target and to make open-ended asset purchases from 2014.

China is the biggest G-20 member to manage its exchange rate.

Japanese officials in Moscow denied driving down their currency, arguing that its weakness was a byproduct of their effort to revive the world’s third-largest economy, which would benefit trading partners.

We stick on the policy and consequently it’s happened,” Finance Minister Taro Aso told Bloomberg Television on Feb. 15. “But that is not our target. Our target is to get out of the recession and deflation. That is our main purpose.

The Japanese defense echoes that made by U.S central bankers against criticism from emerging-market officials such as Brazil’s Mantega for stimulus that has then undermined the dollar and lifted other currencies.

Developed nations should “pay attention to the effects their monetary policies have on external markets,” Chinese Vice Finance Minister Zhu Guangyao told the state-run Xinhua news service from Moscow.

Federal Reserve Chairman Ben S. Bernanke said Feb. 15 in Moscow that the U.S. has deployed “domestic policy tools to advance domestic objectives,” adding that bolstering the U.S. economy will support world growth.

Currency tensions may persist. Japan’s monetary push will probably force “many other central banks to remain or become even more expansionary in order to prevent excessive exchange rate appreciation,” Joachim Fels, chief economist at Morgan Stanley in London


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