The world’s leading finance ministers gave their tacit approval to the soaring US dollar and plunging Japanese yen at the weekend, but international divisions over economic strategy and European banking union remained unresolved.
After an informal gathering of the Group of Seven rich economies outside London, participants reaffirmed their commitment not to use economic policy to seek weaker currencies and did not conclude Japan was breaking that pact yet.
Participants said they were reassured by Japan that its revolutionary new economic strategy was not targeting a weaker yen, although there was concern expressed over the level of liquidity flowing around the global economy.
In other areas of economic debate, however, there was little evidence that deep divisions over strategy had healed. Germany and the US remained at loggerheads over the need for Berlin to boost domestic growth.
European ambitions
Germany also continues to reject European ambitions for it to sign up quickly to a new resolution authority to wind up failing banks in the euro zone. In recent days, the plunging yen and soaring dollar prompted speculation ministers might seek to stop recent sharp exchange-rate gyrations.
On Friday, the dollar rose 0.6 per cent against the main trading partners of the US and hit a five-year high against the yen. The yen has fallen nearly 30 per cent against the dollar since November. While taking a close interest in Japan, the G7 participants agreed all members were sticking to their commitment in February to keep economic policy, "oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates".
Policy stance
Speaking about Japan's policy stance, a senior US treasury official said: "That conversation was good." "The Japanese authorities went into some detail on what kind of evidence they were seeing on how [their policies] were boosting domestic demand," the official added, although the US has made it clear it is watching the yen closely.
US officials stress the need for Japan to meet the G7’s commitment to avoid excessive movements in currencies.
Divisions remained in other areas of negotiation between G7 countries.Mr Schäuble’s response was that fiscal loosening would destroy domestic confidence in a stable German economy. “To enhance growth in Germany, you need to regain confidence,” he said.
George Osborne, UK chancellor, papered over the cracks, saying, “there are more areas of agreement between us on fiscal policy than is commonly assumed”. He pointed to unity of purpose among G7 countries to implement medium-term deficit reduction plans and allow short-term flexibility if conditions deteriorate. – Copyright The Financial Times Limited 2013
