The G-20 officials, who gathered amid signs the world economy is hitting a soft patch, said global growth continues to be “too weak and unemployment remains too high in many countries.” The recovery is uneven, with the U.S. demonstrating a “gradual strengthening of private demand,” while the euro- area’s rebound “has yet to materialize.” Threats include policy uncertainty, private deleveraging and fiscal cuts, the statement said.
“Much more is needed to fulfill our commitment to address the ongoing weakness in the global economy,” the officials said.
The euro area must strengthen its monetary union, the U.S. must continue to consolidate its budget and Japan must define its own medium-term fiscal plan, they said.
Japanese officials used the Washington talks to outline their policies to ensure price stability and deny they were aimed at the yen. Finance Minister Taro Aso said today the G-20 understood its plan and it’s in line with the group’s currency stance.
While Lew said April 17 that countries must avoid “beggar thy neighbor” policies, he said Japan was in line with the pact. European Central Bank President Mario Draghi said April 15 that Japan’s policies are determined by domestic policy considerations” and that “there is no currency war.”
Brazilian central bank President Alexandre Tombini said yesterday he’s seen no evidence of excessive capital inflows as a result of looser monetary policies.
Rich nations are pursuing such policies “not because they want to, but because they need to,” he said. In turn, emerging markets every “once and a while will have to deal with those very large and volatile capital flows by enlarging the toolbox” of policy options.
“Japan being as sick as it was for as long as it was, you’ve got to cut them slack in allowing themselves to work their way out of this situation,” Bank of Israel Governor Stanley Fischer said in an interview with Bloomberg Television yesterday.
Not all are so relaxed. South Korean Finance Minister Hyun Oh Seok said the cheaper yen is hurting his country’s economy more than North Korean threats, an example of a “spillover” that merits discussion.
“Japan’s economic policies are doing their part to help the world economy recover but if this causes problems, and then the problems cause new responses from partnering nations, for example a currency war, the world economy will have a hard time,” Hyun said in an interview in Washington.
German Finance Minister Wolfgang Schaeuble also said easy monetary policy in Japan is also no “substitute for the necessary” reforms to its economic structure.
A weaker yen helps Japanese exporters such as Sony Corp., which gets 70% of its revenue outside the country, and boosts repatriated earnings. Still, an excessive decline could swell import costs and fuel trade tensions at a time of weak global growth.
G-20 members are Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the U.K. and the U.S.