G-20 finance summit ignores Abe-nomics goal of weaker yen

“Let us countries refrain from competing against each other to devalue our own currencies. We will not use exchange rates as a means to secure comparative advantage. Government should not intervene with the exchange rate.”

The G-20 finance ministers’ summit that ended Saturday in Moscow announced a communique against government intervention in foreign exchange rates, but mentioned nothing on Japanese Prime Minister Shinzo Abe’s proposal for a weaker yen. Market analysts say the event has merely given exoneration to Tokyo by reiterating an existing principle, predicting a further drop in the yen’s value.

○ No FX war pushed for, but yen’s devaluation ignored

In the meeting, G-20 finance ministers agreed to monitor and minimize the negative effects of member states’ domestic policies toward other nations. This, however, is just reiteration of the general principle that the ministers adopted in a 2010 meeting in Gyeongju, North Gyeongsang Province.

This outcome contrasts with that of the Davos Forum held Jan. 23–27 in Switzerland, where participants blasted the so-called Abe-nomics. German Chancellor Angela Merkel said, “There is widespread perception among the G-20 countries that Japan is manipulating its exchange rate.”

In the latest Moscow talks, however, participants from G-7 countries seemed to be accepting Japan’s weaker yen policy apparently because they judged that Japanese economic recovery will accelerate global recovery.

Japanese Finance Minister Taro Aso said, “Swift recovery of the Japanese economy will have a positive effect on the global economy as well. I asked countries for understanding about Abe-nomics.”

International Monetary Fund managing director Christine Lagarde said, “Controversy over the exchange rate war has been exaggerated.” U.S. Federal Reserve Chairman Ben Bernanke also said, “The U.S. has used quantitative easing to stimulate the economy, and the same standard should be applied to Japan as well.”

○ Growing burden due to further drop in yen’s value

Thirteen non-G-7 countries began efforts to check Japan’s policy to depreciate the yen.

Korean Strategy and Finance Minister Park Jae-wan said of Japan in the Moscow meeting, “There`s no free lunch. Resorting only to quantitative easing will cause (the world) to pay a hefty price over the long term.” On Washington’s support of a weaker yen, he said, “Policy and comments by countries with key currencies have huge ramifications, and should not be overlooked. The volatility of Asian currencies has fast expanded recently amid the weaker yen trend, which is worrisome.”

Since the agreement of the G-20 meeting was simply reiteration of an existing principle, experts predicted that the yen would depreciate further. Analysts of the Japanese market forecast a yen-dollar rate in the 95 range from 92.9, set on Friday.

abc@donga.com