G-7 Pledges to Let Markets Set Currency Rates ; Japan Reads Statement as Policy Endorsement, but Others See a Warning
James Kanter; Annie Lowrey, International Herald Tribune
The statement eased fears in Japan, where officials had been under fire from some in Europe and the United States, who said they were unfairly bringing down the yen's value.
Seven major developed countries including the United States and Germany pledged on Tuesday to let foreign exchange markets determine the value of their currencies.
The statement by the Group of 7 prompted relief in Japan, where policy makers have been under fire for unfairly seeking to give their economy a shot in the arm by bringing down the value of the yen. The statement "properly recognizes that steps we are taking to beat deflation are not aimed at influencing currency markets," said Taro Aso, the Japanese finance minister.
But a Group of 20 official said that the statement was meant to warn Japan not to target its exchange rates in its efforts to lift its moribund economy, and that concerns about Japan's policies and the prospect of competitive currency devaluation would be a major topic at a coming G-20 meeting in Russia.
The statement and conflicting follow-ups from economic officials and finance ministries around the world caused significant confusion on Tuesday, with some market participants interpreting them as quelling fears of a so-called currency war and others interpreting them as stoking them. The yen climbed against the dollar and the euro as officials aired their concerns about Japan's policies.
In a statement, the G-7 nations said they would consult closely to avoid moves that could hurt stability. But they restated a commitment to market-determined exchange rates.
"We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates," the G-7 said in the statement, which was posted on the Web site of the Bank of England.
Concerns had been mounting in recent weeks about the effects of an ultraloose monetary policy in Japan that has pushed the yen lower against major currencies. The yen's weakness also had prompted talk of a so-called currency war if other parts of the world followed suit in a competitive devaluation.
Some international economic officials have brushed off the growing accusations of unfair or competitive currency manipulation.
"This increasing talk of currency wars is very much overblown," said Olivier Blanchard, the chief economist at the International Monetary Fund, in January. …