G-20 shuns currency war

Group of 20 finance chiefs adopted a harder line against governments trying to influence exchange rates as they sought to tame speculation of a global currency war without singling out Japan for criticism.

Two days of talks between the G-20’s finance ministers and central bankers ended on Saturday in Moscow with a pledge not to “target our exchange rates for competitive purposes.” That marked a strengthening of their stance since officials last met three months ago and ran closer to what the Group of Seven rich nations said for the first time this week.

Amid a sliding Japanese yen, policy makers are attempting to soothe concern that governments are increasingly trying to weaken exchange rates to spur growth through exports. The risk is a 1930s-style spiral of devaluations and protectionism if other countries retaliate to safeguard their own economies.

“Currency wars are globally suboptimal because if one country devalues its currency the other country can strike it and everybody gets in a circle,” Reserve Bank of India Governor Duvvuri Subbarao told reporters in Moscow on Saturday.

The new commitment is probably aimed at warning Japanese officials not to publicly discuss the yen’s value and may be enough for the currency to rise against the dollar when trading resumes, said Chris Turner, head of foreign-exchange strategy at ING Groep NV in London. Still, any gain will prove short lived as Japan is set for more aggressive monetary stimulus, he said.

“It makes it harder for the Japanese to talk down the yen, but they will let their policies do the talking,” said Turner who predicted the yen will weaken toward 100 per dollar from 93.50.

Japan has faced suspicion of trying to depreciate its currency, which lost seven per cent this year as new Prime Minister Shinzo Abe campaigned for looser monetary policy to end 15 years of deflation.

Japanese officials in Moscow denied driving down their currency, arguing its fall was a byproduct of their effort to revive the world’s third-largest economy and that its success would benefit trading partners.

“Monetary policy is focused on ending deflation and stabilising the domestic economy by achieving sustainable growth under price stability,” Bank of Japan Governor Masaaki Shirakawa said on Friday. Finance Minister Taro Aso said a stronger Japan would “have a positive impact on the global economy.”

Such points echo those made by US central bankers who have run into criticism from emerging markets for embracing stimulus, which has undermined the dollar. Federal Reserve Chairman Ben S. Bernanke said on Friday in Moscow that the US has deployed “domestic policy tools to advance domestic objectives,” adding that bolstering the US economy will support world growth.