Group of 7 Says It Will Let Market Decide Currency Values

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. “Countries have to take the right measures to get their own economies back to health.”

But loose monetary policy designed to increase growth often has the effect of devaluing a currency, thus making a given country’s exports more affordable and its competitors’ exports more expensive. In the past few years, emerging market countries like Brazil have vocally accused slow-growing advanced countries like the United States of unfairly pushing down the value of their currencies with their aggressive monetary policies.

For years, of course, the United States has dinged export-reliant emerging economies, in particular China, for manipulating their currencies, too.

This week, the Obama administration said that it supported countries’ efforts to increase economic growth and lower unemployment, but not by manipulating their exchange rates.

“We support the effort to reinvigorate growth and to end inflation in Japan,” Lael Brainard, the Treasury undersecretary for international affairs, said during a briefing Monday. But she emphasized that the G-7 had a “longstanding set of rules” committing its members to float their currencies except during very rare instances of market turbulence.

As some officials in Japan have argued the country should target the value of the yen, some officials in Europe have supported doing the same for the euro. The euro’s rise in value has become a particular concern as it could make exports more expensive and dent growth if demand for European products falls. Those concerns had prompted France to call for some kind of exchange-rate policy.

On Monday, Pierre Moscovici, the French finance minister, said he wanted the Europeans to present a common plan this week during the meeting of finance ministers and central bankers of the Group of 20 nations to be held in Moscow.

But the head of the German Bundesbank, Jens Weidmann, said Monday that the French initiative was a poor substitute for policy overhauls that, if implemented, would do more for growth.

On Tuesday in Brussels, following a regular monthly meeting of E.U. finance ministers, Wolfgang Schäuble, the German finance minister, said that there was “no foreign exchange problem in Europe” and that such issues should be discussed at the G-20 meeting in Moscow.

Annie Lowrey reported from Washington.

Article source: http://www.nytimes.com/2013/02/13/business/global/group-of-7-says-it-will-let-market-decide-currency-values.html?partner=rss&emc=rss