Economy Minister Akira Amari denied Japan’s new government is actively targeting a weaker yen, taking to the international stage to argue that economic policy is instead aimed at defeating deflation.
Japan is “absolutely not deviating from global standards,” Amari told the World Economic Forum’s annual meeting in Davos, Switzerland on Jan. 26. “I don’t comment on a foreign-exchange rate because it should be determined by the market. What we do is to implement policies.”
Amari spoke at the end of a week in which German and Canadian policy makers joined a worldwide chorus highlighting a recent plunge in the yen as a worry. The currency has declined to its lowest against the dollar since June 2010 as Prime Minister Shinzo Abe pushes for easier monetary policy.
That strategy has sparked criticism that Abe is trying to weaken the yen to stoke exports, breaching a pledge by Group of 20 economies not to competitively devalue exchange rates for fear of sparking a so-called currency war.
“The Abe administration attaches its highest priority to exiting from prolonged deflation partly accompanied by the appreciation of the yen, and revitalizing the economy,” Amari said.
“Many nations said they welcome and support Japan’s new measures,” he told reporters. “Misunderstandings held by a small group of people have been cleared up.”
Abe's government is wrestling with reviving growth and ending deflation without triggering a surge in bond yields as the nation labors under debt already more than twice the size of the economy.
Japan's tax revenue for the fiscal year starting in April is projected to be larger than the money raised from government bond sales for the first time in four years, according to figures released by Finance Minister Taro Aso in Tokyo yesterday evening.
The government forecasts 43.1 trillion yen ($474 billion) of tax revenue, compared with 42.85 trillion yen from issuing bonds. Total spending will be 92.6 trillion yen, Aso said.
``We've been saying for three years that bond issuance exceeding tax revenue is abnormal,'' Aso told reporters. That tax receipts will be higher this time is ``a big deal,'' he said.
Speaking on the same Davos panel, Bank of Canada Governor Mark Carney commended Japan’s focus on beating deflation. Carney, who will move to the Bank of England in July, said Amari had been “very clear and the Bank of Japan is clear in terms of the policy focused on a domestic inflation target.”
Japan’s currency has dropped for 11 straight weeks versus the dollar, the longest losing streak in data compiled by Bloomberg going back to 1971. It has depreciated about 9 percent in the past two months and closed at 90.91 per dollar on Jan. 25.
A weaker currency helps Japanese exporters such as Toyota Motor Corp., whose shares have gained about 20 percent in the last two months because that boosts profits when repatriated from overseas.
German Chancellor Angela Merkel said on Jan. 24 in Davos that “I can’t say I’m completely free of worry when I look at Japan right now.” Canadian Finance Minister Jim Flaherty told Bloomberg Television’s Erik Schatzker three days ago that he’s spoken to Japan Finance Minister Taro Aso about exchange rates.
“I said ‘my concern is that you act too quickly and it causes international consequences,’” Flaherty said in Davos.
U.S. Treasury Undersecretary Lael Brainard said in an interview in Davos that she expected major economies to obey the “rules of the game” in currency markets. The deputy governor of China’s central bank, Yi Gang, said that there needs to be “better communication and coordination” on foreign exchange among G-20 countries.
Finance chiefs from the bloc next meet in Moscow in February.
Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, said when it comes to currency surges “there is a certain legitimacy in trying to defend yourself against the onslaught.”
That drew a rebuttal from Carney.
“There is understanding within the G-7 that has existed and for good benefit and for the benefit of the global economy that there is not unilateral currency intervention,” he said.