Japan, Not China, Emerges as Currency Worry at G-20 Meeting

  • Dijsselbloem: Risk is one currency devaluation will spur more
  • Kuroda counters that there was no opposition at G-20 meeting

China’s currency was expected to be one of the the main topics at this week’s Group of 20 meeting. Instead, Japan’s yen and monetary policy were identified as a source of concern for some officials from the world’s leading economies.

"The debate was also about Japan, to be honest -- there was some concern that we would get into a situation of competitive devaluations," Eurogroup chief Jeroen Dijsselbloem said in Shanghai. Once one country devalues it’s currency, "the risk is very large that another follows and we get into competitive devaluation," Dijsselbloem told reporters.

The comments indicated increasing concern about the Bank of Japan’s unprecedented monetary stimulus, which has weakened the yen against the dollar and driven bond yields to historic lows. The announcement of a negative rate policy last month surprised markets and spurred currency volatility.

There was "absolutely no" opposition or opinions expressed about the BOJ’s negative-rate policy, BOJ Governor Haruhiko Kuroda told reporters in Shanghai Saturday.

The bank’s explanation of its policy of "Quantitative and Qualitative Easing with a Negative Interest Rate" was well understood by the nations, Kuroda said. "The BOJ’s easing policy is to achieve the 2 percent inflation target as quickly as possible, and if needed we will add policy, and this has always been understood by the G-20."

A Japanese Finance Ministry official told reporters Friday that there weren’t any questions from other nations in response to Kuroda’s presentation to the G-20.

No Surprises

If devaluation is a consequence of monetary policy which is motivated by real macro-economic domestic reasons, then nations must make sure to inform and consult with each other so there are no surprises, Dijsselbloem said Saturday.

By contrast, one official from the G-20, who asked not to be identified as the talks were private, said members were broadly reassured that China isn’t going to start weakening its currency. Chinese policy makers have repeatedly said there’s no basis for long-term depreciation of the yuan. Brazilian Finance Minister Nelson Barbosa claimed credit for his country in convincing China to avoid competitive devaluation.

The BOJ in January followed the European Central Bank, the Swiss monetary authority and others in charging financial institutions interest on some of the reserves they keep at the central bank. The policy doesn’t target foreign exchange rates, Kuroda said in parliament Friday before heading to Shanghai.

From the perspective of Japanese policy makers, they might not have had any choice, said one official from a G-20 emerging market. Yet BOJ policy creates an impact around the region and there was concern about this, said the official, who asked not to be identified as the discussions aren’t public.