Moscow was the venue for the latest skirmishes in the so-called currency war as finance leaders from the G20 group of the world’s richest nations met.
Just days after the G7 – that is the US, Japan, Germany, Britain, France, Canada and Italy – said that domestic economic policies must not be used by governments to bring down the value of their currencies in order to boost exports, the G20 seemed to be backing away from that letting Japan off the hook.
If adopted by G20 finance ministers and central bankers, the wording of draft communique from the gathering will confirm that Japan will escape any censure for its expansionary policies which have driven the yen lower and drawn demands for action from some quarters.
The Bank of Japan’s governor Masaaki Shirakaw said blandly: “I believe each country’s policies aimed at stabilising their own economies will lead to stability of the global economy as a whole.”
The G20 draft merely sticks to previous G20 language on the need to avoid excessive foreign exchange volatility, the delegate said.
The yen has fallen by around 20 percent since November. On Friday, it slipped against the dollar and euro in response to the communique details.
European Central Bank President Mario Draghi joined other officials in talking down the very idea of a currency war featuring competitive devaluations: “All this chatter that has been undertaken in the last few weeks about exchange rates is either inappropriate or fruitless. In all cases it is self-defeating.”
Draghi also stressed – again – that the euro’s value in comparison with other currencies is in line with its average over the long-term. That suggested the ECB is not worried that the euro’s recent strengthening would choke off any economic recovery in the eurozone.
International Monetary Fund chief Christine Lagarde backed Draghi. “The current talk of currency wars is overblown,” she told the G20 ministers and central bankers.
“There is no major deviation from fair value of major currencies.”
Other policymakers in Moscow said Japan’s aggressive fiscal and monetary expansion aimed at raising the inflation rate to 2.0 percent was to be welcomed if it boosted growth.
“There is no competitive devaluation, there are no currency wars,” Russia’s Deputy Finance Minister Sergei Storchak, told reporters. “What’s happening is market reaction to exclusively internal decision making.”
Australian Treasurer Wayne Swan indicated support for Japan’s monetary policy saying “everybody’s got a stake” in its ability to foster growth.