Group of 20 finance chiefs are planning to disavow competitive devaluations in a statement to be released after talks end in Moscow tomorrow, according to an official from a G-20 nation.
The latest draft of the group’s communique doesn’t repeat this week’s pledge by the Group of Seven to avoid using exchange rates as a goal of policy, said the official, who asked not to be identified because the document isn’t public. It will instead echo language adopted by the G-20 in November, which urges currencies to be set by financial markets.
The G-20’s finance ministers and central bankers are trying to find common ground after the G-7 this week sought to avoid a so-called currency war by uniting around a commitment not to target exchange rates -- only to then divide over whether the statement signaled irritation with Japan.
“All members of the G-20 need to deliver on the commitment to move towards market-determined exchange rates,” U.S. Treasury Undersecretary Lael Brainard said at a conference in Moscow today. “G-20 members will have to bring their exchange frameworks into alignment so that we grow together and avoid a downward spiral of beggar thy neighbor policies.”
Bank of Japan Governor Masaaki Shirakawa today defended his nation’s economic strategy, arguing it is aimed at beating 15 years of deflation and not at driving down the yen.
Japan’s Stimulus
The yen weakened against the dollar after the G-20 official spoke, retreating for the first time in four days. It traded at 93.46 per dollar at 8:48 a.m. in New York.
“What there is is a debate going on about the deployment of monetary policy across a number of developed economies,” Australian Treasurer Wayne Swan told reporters in Moscow today. “In so far as that monetary policy is directed towards getting stronger growth in the domestic economy, that’s a good thing for the global economy.”
Japan is in the spotlight after the yen tumbled about 12% in the past three months on the bet that new Prime Minister Shinzo Abe will pursue a campaign commitment to demand more aggressive monetary policy. Since his election, the Bank of Japan has adopted a 2% inflation goal and paved the way toward open-ended asset purchases.
‘Ending Deflation’
“Japan’s monetary policy is focused on ending deflation and stabilizing the domestic economy by achieving sustainable growth under price stability,” Shirakawa, who will retire next month, told reporters in Moscow. “The biggest factor for a weak yen is a change in global investors’ stance to avoid risks.”
There are also differences within the G-20 over how far to revise goals for budget deficits and debt the G-20’s advanced nations set for themselves in 2010 and which most are now on course to miss.
German Finance Minister Wolfgang Schaeuble called for “concrete” targets, only for Russian official Ksenia Yudaeva to say new formal commitments would be “counterproductive.”
Confusion broke out on Feb. 12 as one G-7 official said the group’s first statement on currencies since 2011 was meant as a criticism of excessive moves in the yen and Japan’s occasional willingness to guide investors on its desired value. A U.K. official later denied any country was being singled out.
Limited Chances
Differences within the smaller group may have limited the chances for reaching a new consensus on exchange rates in Moscow. China is one G-20 member that manages its currency’s value. The G-20’s final communique won’t include a separate statement about Japan, Russian Deputy Finance Minister Sergei Storchak told reporters in Moscow today.
“If the G-20 statement just reaffirms its existing stance, or even just adopts the slightly more specific G-7 statement, then we would expect the major currency trends to be resumed,” Morgan Stanley foreign-exchange strategists led by Hans Redeker said in a report to clients.
Indonesian central bank Deputy Governor Hartadi Sarwono said today in Moscow that a stronger Japanese economy should be welcomed as a boost for global growth.
“If the Japanese increase their domestic demand, it will help Indonesia, especially from the export side,” Sarwono said. “Up to now we don’t really have very much concern on the depreciation itself.”
Mantega’s Pledge
Still, Brazilian Finance Minister Guido Mantega, who coined the phrase “currency war” in 2010, said his government wouldn’t allow the real to over appreciate after reaching a nine-month high. Mantega has repeatedly criticized stimulus by developed nations for forcing capital into economies such as his, pushing up their currencies and threatening asset bubbles.
Not all G-20 policy makers want a lower exchange rate. European Central Bank council member Jens Weidmann said in a Feb. 13 interview published today that “the exchange rate of the euro is broadly in line with fundamentals” and “you cannot really say that the euro is seriously overvalued.”
ECB President Mario Draghi said today in Moscow although the central bank doesn’t have a goal for the euro, it plays an important role in assessing the outlook for inflation and growth.
“Chatter” about exchange rates is “self-defeating,” he said.
