“In Japan, there’s a problem that domestic demand isn’t sufficiently strong and it has experienced light deflation for some time,” Jordan said. “Japan and the Japanese central bank are trying to change policy in the direction to avoid deflation and in order to stimulate growth.”
The G-7’s day-long fracturing undermines a call by Bank of Canada Governor Mark Carney for the group’s officials to enter the Moscow meeting “united” in the hope they can extend to others in the G-20 the commitment to allow currency values to be free of government interference. China is among G-20 members that control the value of their exchange rates.
Emerging markets such as Brazil will also be critical of Japan, having already complained that easy money in rich nations such as the U.S. is overheating their economies, said Thomas Stolper, chief currency strategist at Goldman Sachs Group Inc. They may intensify efforts to prevent appreciation of their currency, he said.
“The risk is that this leads to more protectionist policies over time,” said Stolper. “The importance of the G-7 statement for the yen may only be visible over the medium term, as it potentially reduces Japan’s ability to intervene compared with the past.”