G20 will not blame Japan for lower yen

G20 officials will disregard key parts of a currency statement issued this week by the Group of Seven powers, according to a communique drafted for finance leaders meeting in Moscow, and will not single out Japan.

A G20 delegate who has seen the draft — put together by deputy finance ministers for their bosses — said it would also make no direct mention of new debt- cutting targets, something Germany is pressing for but which the US wanted struck out.

If adopted by G20 finance ministers and central bankers’ meeting in Moscow today, the wording 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 currency market was thrown into turmoil this week after the G7 — the US, Japan, Germany, Britain, France, Canada, and Italy — issued a joint statement stating that domestic economic policies must not be used to target currencies.

ECB president Mario Draghi said recent sparring over currencies was “inappropriate, fruitless, and self-defeating”.

He also said the euro’s exchange rate was in line with long-term averages, a point endorsed by IMF chief Christine Lagarde.

“The current talk of currency wars is over- blown,” she told the G20 ministers and central bankers. “There is no major deviation from fair value of major currencies.”

Other policymakers said Japan’s aggressive fiscal and monetary expansion aimed at raising the inflation rate to 2% 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 said.

The draft communique reflected a row brewing between Europe and the US over extending a promise to reduce budget deficits beyond 2016. A pact struck in 2010 will expire this year if leaders fail to agree to extend it at a G20 summit of leaders in September.

The G20 put together a huge financial backstop to halt a market meltdown in 2009 but has failed to reach those heights since.

At successive meetings, Germany has pressed the US and others to do more to tackle their debts.

Washington in turn has urged Berlin to do more to increase demand.

The draft reaffirms G20 commitments to draw up credible medium-term fiscal plans but will also make allowance for the near-term economic downturns facing some countries, the G20 delegate said.

— Reuters