G7 fires currency warning shot

Feb 13 2013, 02:33 IST
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Japan says G7 statement recognises Tokyo’s policy steps were not aimed at affecting foreign exchange markets

Group of Seven nations reiterated their commitment on Tuesday to market-determined exchange rates and said fiscal and monetary policies must not be directed at devaluing currencies.

The intervention follows a round of rhetoric about currency wars, prompted largely by Japan’s new government pressing for an aggressive expansion of monetary policy, which has seen the yen weaken sharply as a result.

The statement said the G7 powers — US, Britain, France, Germany, Japan, Canada and Italy — had agreed to consult closely on exchange rates which if allowed to move in a disorderly fashion could hurt economic and financial stability.

“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,” said the statement, released by Britain which chairs the G8 (G7 plus Russia) forum this year.

Despite that, there is little suggestion that Tokyo is going to come under serious pressure when G20 finance ministers and central bankers meet in Moscow at the end of the week, not least because the US is indulging in similar policies.

Japanese finance minister Taro Aso welcomed the statement, saying it recognised Tokyo’s policy steps were not aimed at affecting foreign exchange markets.

“It was meaningful for us as (the G7) properly recognises that steps we are taking to beat deflation are not aimed at influencing currency markets,” Aso told reporters.

US treasury official Lael Brainard said on Monday that while competitive devaluations should be avoided, Washington supported Tokyo’s efforts to reinvigorate growth and end deflation.

The dollar edged up to 94.21 yen, from around 94.16 yen before the statement was issued.

US and European officials have been concerned about comments from Japanese officials that suggest Tokyo is targeting a specific level for the yen.

Last week, France went as far as calling for a medium-term target to be set for the euro out of concern the exchange rate had become too strong. Berlin rejected that suggestion and said it did not view the currency as being overvalued.

French finance minister Pierre Moscovici made little headway at a meeting of euro zone finance ministers on Monday.

Since late last year, the euro has climbed more than 10 cents from below $1.27 before subsiding in recent days after European Central Bank (ECB) chief Mario Draghi indulged in a bit of gentle verbal

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