Japan, U.S. Discord on Yen’s Surge Resurface at G-7 Meeting

In a Negative Rate World, What's at Stake for G-7?
  • Japanese finance minister again warns of disorderly moves
  • U.S. official says yen surge doesn’t merit intervention

Japan used a meeting of finance chiefs from the world’s major industrialized nations to warn of the economic risks from sharp swings in the yen, even as the U.S. made clear that currency markets remain calm.

The divergent views highlight ongoing tensions between two of the world’s three biggest economies over how Japan can respond to a surge in the yen of around 9 percent against the dollar this year. The currency’s advance has hurt Japanese exporters and spurred speculation that the government may intervene to weaken the yen for the first time since 2011.

Finance ministers and central bank governors from the Group of Seven economies are meeting at a hot springs resort in Sendai, northern Japan, where the official agenda has them focusing on ways to revitalize global growth and tackle cross-border tax evasion.

But exchange rates have also been discussed.

“I said that stable foreign exchange rates are extremely important as excessive and disorderly movements have a negative impact on the economy,” Japan’s Finance Minister, Taro Aso, told reporters Friday evening. “Also, I said that we are committed to avoiding competitive currency devaluation.”

U.S. View

That stance is in contrast with the U.S., which reaffirmed its view that currency trading isn’t showing signs of being disorderly. The U.S. continues to believe that conditions are orderly, said a U.S. Treasury official, speaking on condition of anonymity.

The G-7 last gave a green light to Japanese intervention in 2011 after a massive earthquake and tsunami devastated swathes of the country’s northeast.

The U.S. official said that people need to distinguish between that kind of crisis and other fluctuations in the market that just happen. When there are truly disorderly conditions, it is very apparent, the official said.

The discussions on the exchange rate come days after official data showed Japan dodged a recession last quarter, propped up by government spending.

Fed Impact

Recent gains in the dollar on signals that the U.S. Federal Reserve may lift interest rates over coming months has taken some pressure off the yen, knocking it from an 18-month high, though analysts say the reprieve could be short lived. It traded at 110.34 versus the dollar at 9:59 p.m. Tokyo time. 

“I expect tension over the yen will continue between the U.S. and Japan,” said Hiroshi Shiraishi, an economist at BNP Paribas SA. “Even though the yen is back to 110, there are a lot of uncertainties in the global economy. The yen could gain again and Japan will signal readiness for intervention.”

The U.S. has already put economies including China, Japan and Germany on a new currency watch list saying their foreign-exchange practices bear close monitoring to gauge whether they provide an unfair trade advantage over America.

Pressure on Japan’s policy makers to respond to the yen’s strength have been building.

Export Impact

Exporters including Toyota Motor Corp. have warned that profits will likely be hurt as the value of earnings drops when repatriated to Japan. Sadayuki Sakakibara, the head of the nation’s top business lobby, Keidanren, has called for the government to "put the brakes" on the yen.

Still, it’s not just the U.S. that is disagreeing with Japan’s stance. Eurogroup head Jeroen Dijsselbloem also pushed back against suggestions that the yen’s move this year could justify intervention, saying instead Japan needs to focus on structural reforms.

“The effect is always short-term, and very often triggers currency wars,” he told Bloomberg in an interview. “So let’s not go down that road.”

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