US calls on Japan not to drive yen down
Bloomberg in Washington
Japan will be reminded of its pledge not to drive down the yen when Group of 20 finance chiefs meet this week for the first time since the world's third-largest economy intensified its campaign to defeat deflation.
As G20 finance ministers and central bankers prepare to convene this week in Washington, the US Treasury is saying it will press Japan to refrain from competitive devaluation, and European governments are urging it not to become too reliant on fiscal and monetary stimulus.
The yen has fallen against all 16 of its most-traded counterparts since April 4, when the Bank of Japan surprised investors by doubling monthly bond purchases and setting a two-year horizon for achieving its goal of 2 per cent inflation. The salvo leaves foreign policymakers coupling praise for the effort to boost stagnant economic growth with concern it may come at the expense of their exporters if the yen keeps sliding.
"Yen moves have been too rapid for the US to applaud Japan's battle to end deflation," said Yasuhide Yajima, the chief economist at NLI Research Institute. "Japan will have to show fiscal plans and means to strengthen growth to make it clear it's not depending only on weakening the yen to revive the economy."
The US Treasury said on Friday that Japan must "remain oriented towards meeting respective domestic objectives using domestic instruments and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes".
In a planning document prepared for the G20 talks, the European Union will note the "lack of credible medium-term fiscal consolidation plans in the US and Japan". It will push Tokyo to make structural reforms to an economy roiled by repeat recessions over the past two decades, according to the document.
The US stance echoes that adopted by the Group of Seven and G20 in February, when members pledged not to target exchange rates for competitive reasons. That was seen as an endorsement of Japan's recovery push so long as officials did not directly target a weaker yen.