Global finance ministers braced for more skirmishes today in a week of
simmering tension over "currency wars" as the G20 gathered in Moscow.
The meeting represents a desperate attempt to maintain a united front
despite behind-the-scenes bickering over Japan's aggressive efforts to depress
the yen and boost exports under new prime minister Shinzo Abe.
Earlier this week the G7 nations and central banks had pledged to avoid
manipulation of currencies to spur growth. But the public commitment not to
target exchange rates was immediately undermined by an unofficial briefing
aimed at Japan.
European Central Bank president Mario Draghi today labelled the bickering
over currencies as "inappropriate, fruitless and self-defeating". Russia's
Deputy Finance Minister Sergei Storchak denied the existence of currency wars,
labelling recent swings in the yen as "market reaction to exclusively internal
decision making".
The G20's communique tomorrow is unlikely to single out Japan but will
shy away from the G7's commitment not to target exchange rates, as China would
be unlikely to sign up to such a statement.
The quantitative easing pursued by central banks around the world --
including the Bank of England and the US Federal Reserve -- has enraged
emerging economies such as Brazil as the value of their foreign reserves
dwindles, raising fears over "competitive devaluations".
CMC Markets analyst Michael Hewson said: "What the G7 basically said this
week is that it is fine to manipulate your currency as long as you don't talk
about it. These 'currency wars' are more like phony wars. The bigger problem
the G20 has is not currency wars, it is a lack of growth."
Japan is bidding to shake off the economic torpor of the past two decades
with a huge round of monetary and fiscal expansion aimed at hitting a new 2
percent inflation target. The yen has fallen by about 20 percent since
November.
But the strengthening euro is also concerning European politicians as the
eurozone seeks to climb out of a malaise underlined by a worse-than-expected
0.6 percent slide in GDP in the final quarter of last year.
French President Francois Hollande called last week for a medium-term
target for the euro, but Bundesbank president Jens Weidmann came out against
such a move today, expressing fears over "a politicisation of the exchange
rate".
