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Japan convinces G7 ministers it’s not manipulating currency

G7 finance ministers and central bank governors gather for a photo in Aylesbury, England, May 10, 2013. In the back row, from left: Jens Weidmann, Deutsche Bundersbank; Mark Carney, Bank of Canada; Mario Draghi, European Central Bank; Haruhiko Kuroda, Bank of Japan; front row, Lew Jacob, U.S.; George Osborne, Britain; Mervyn King, Bank of England. The value of the yen was a hot topic during the weekend meeting.

Alastair Grant/AP

Japan has gone a long way toward easing global concerns about the recent fall in the value of the yen, convincing members of the Group of Seven nations that it is not deliberately driving down the currency to gain an export advantage.

The value of the yen was a hot topic during a weekend meeting of finance ministers and central bankers from the G7 nations – Canada, the United States, Britain, France, Italy, Germany and Japan.

During the informal gathering at a country inn northwest of London, Japanese officials came under fire for the country's recent aggressive monetary policy moves that have flooded the economy with money. That has sent the yen to a four-year low against the U.S. dollar and prompted fears of a currency war.

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"There were expressions of concern," Finance Minister Jim Flaherty said Saturday. "There always are when it appears that the value of currencies are not being set in the open market."

Added German Finance Minister Wolfgang Schaeuble: "We had a very intense discussion about Japan with our Japanese colleagues."

The Bank of Japan's new governor, Haruhiko Kuroda, who has orchestrated the new monetary policy, explained during the meeting that the measures were aimed at stimulating the economy and boosting prices and wages, not artificially helping exporters.

"Easing will contribute to achieving our domestic objective of ending nearly 15 years of deflation," Mr. Kuroda said Saturday.

Japan's Finance Minister, Taro Aso, indicated after the meeting that the discussions had gone well and that the country had not been criticized for its policies.

That was echoed by most G7 ministers, including George Osborne, Britain's Chancellor of the Exchequer, who chaired the meeting. "What our Japanese friends said to us is that of all the initiatives they are taking amongst the most important are the structural changes to the Japanese economy," he told reporters. "Yes of course they are taking fiscal and monetary action, but it's also those structural reforms that are particularly important."

The structural reforms include opening the Japanese economy to foreign competition, increasing female participation in the labour force, lowering corporate taxes and developing tax-free zones.

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Mr. Osborne also brushed aside concerns Japan is sparking a currency war. The G7 "reaffirmed the commitment that we made earlier this year not to target exchange rates and to make sure that our policies are concentrated toward domestic objectives and using domestic instruments," he said.

Another major topic of discussion during the weekend was the future of government austerity programs and whether spending cuts have gone too far.

Mr. Flaherty had been among the most outspoken ministers on the need for fiscal prudence. Before the meeting, he chastised other G7 countries for "straying" from deficit reduction, saying nations can only improve education, health care and social programs if their fiscal houses are in order. On the other hand, French Finance Minister Pierre Moscovici criticized the austerity drive, saying a more balanced approach was needed.

By Saturday, both claimed partial victory in getting their views across. Mr. Flaherty said there was "fundamental agreement" with his position, although he recognized that countries facing high unemployment have to take steps to stimulate their economies. "Does fiscal consolidation, moving toward balanced budgets and controlling spending, does that mean that one ignores those who are struggling? The answer is no and I think we're agreed on that that governments can still act," he said after the meeting.

Mr. Moscovici said he sensed a change in attitude at the meeting. "The consensus is gaining momentum in the way we balance support for growth and fiscal consolidation," he told reporters. "There is still a real will to reduce the deficits but certainly there is a change of tone."

One of the subplots during the weekend was the future role of Mark Carney, Governor of the Bank of Canada. Mr. Carney will become the head of the Bank of England in July, replacing Mervyn King, and he kept a low public profile during the weekend, refusing all comment and staying away from the press conferences.

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Mr. King attended the press briefing with Mr. Osborne and offered a few thoughts on his retirement. "In a week in which retirement came to Sir Alex Ferguson it's pretty clear it has to come to everyone," Mr. King told reporters Saturday referring to the long-time manager of Manchester United who announced his retirement this week. "I did say to my colleagues at the G7 last night that I will not be scouring the internet to read the details of the next communique."

The meeting also ended on a light moment when Mr. Osborne was asked by a British reporter to identify his favorite Star Wars character. The question came up because the makers of the movie series have indicated that the next installment will be made in Britain. Mr. Osborne said the decision is a vote of confidence in the British film industry and will help create jobs. His favorite character? "Han Solo."

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About the Author
European Correspondent

Paul Waldie has been an award-winning journalist with The Globe and Mail for more than 10 years. He has won three National Newspaper Awards for business coverage and been nominated for a Michener Award for meritorious public service journalism. He has also won a Sports Media Canada award for sports writing and authored a best-selling biography of the McCain family. More


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