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Japanese weakness highlights currency tensions

Japanese weakness highlights currency tensions
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Japan’s government has said the country’s economy is now at a standstill and with exports and industrial output weakening it has downgraded its overall economic assessment.

A senior official warned that if there is any further pressure Japan could tip into recession.

That assessment by ministers highlighted the growing differences between developed and emerging countries that is at the heart of global currency tensions.

The World Bank meanwhile has warned that the large amounts of money flowing into Asian countries – chasing higher returns – could fan inflation, lead to asset bubbles and harm the banking sector.

With Asian currencies appreciating, the World Bank said governments need to be careful not to repeat the mistakes of the Asian financial crisis of more than a decade ago.

The World Bank has also blamed US monetary policy – the weakening dollar – for driving cash into Asia.

US Treasury Secretary Timothy Geithner, looking to placate critics, vowed not to devalue the dollar.

He said the US will not try to devalue its way to prosperity as the country’s economy is on the mend: “Most of the adjustment we face as a country in real estate and in the financial sector is largely behind us.”

Geithner said Washington needs to “work hard to preserve confidence in the strong dollar” by maintaining growth and restoring budget discipline.

Strains over exchange rates will dominate a meeting of finance ministers of the Group of 20 major economies in South Korea starting on Friday.