Swan Backs Japan-to-U.S. Stimulus as G-20 Meets, Yen Slides

Australian Treasurer Wayne Swan said he supports Federal Reserve Chairman Ben S. Bernanke’s quantitative easing and Japanese Prime Minister Shinzo Abe’s reflation policy, in contrast to Europe’s hazardous pursuit of austerity as the world economy struggles to shake off the global financial crisis.

“Expansionary monetary policy can bring about a depreciation of the currency, but that doesn’t mean it is manipulation,” Swan said in an interview at the Bloomberg Australia Economic Summit in Sydney when asked about concern Japan is driving down the yen. “Thank god for the Fed,” he said in reference to its efforts to support U.S. growth.

Swan’s comments ahead of a Group of 20 meeting next week contrast with criticism in countries from South Korea to China of Japanese policies that triggered a slide in the yen to a four-year low. While Australia’s currency is “defying gravity” and imposing pain on its car industry, the nation is poised to benefit from strengthening growth abroad, Swan said.

“It’s going to be very difficult for the G-20 to be critical of Japan because Japan has ultimately only done what other countries have implemented -- namely the U.S., U.K., and Europe,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong and a former consultant on Asian economics and politics to the World Bank. “Japan is justified because growth has been so anemic that something needed to be done to revive it.”

G-20 Gathering

Finance ministers and central bank governors from the G-20, which groups the largest developed and emerging nations, are scheduled to gather in Washington April 18-19 alongside the spring gathering of the International Monetary Fund and World Bank.

“The global economy requires the big economic engines to grow so we can all grow together, and if that requires expansionary monetary policy because fiscal policy has reached its limits or can’t be implemented then so be it,” Swan, 58, said today. He said in prepared remarks at the conference that economies still “have not made up lost ground” from the damage of the 2007-2009 credit crisis.

Monetary Floodgates

The Fed, European Central Bank and Bank of Japan have more than doubled the combined size of their balance sheets since the global financial crisis broke out in 2007, expanding them by a total $4.7 trillion. With additional BOJ action last week, that amount could be increased by at least a further $1.3 trillion by the end of 2014.

South Korean Finance Minister Hyun Oh Seok said two days ago that his nation wants to strengthen international cooperation through the G-20 to restrain the impact of monetary policies from advanced economies.

With the Korean won soaring 19 percent against the yen in the past five months, Asia’s fourth-largest economy has been losing vitality with signs of decelerating job growth, Hyun told reporters in Seoul. “It’s necessary to talk about how one country’s policy affects others,” he said.

The yen has tumbled as Japan stepped up its campaign to end 15 years of deflation that have depressed growth, with the Bank of Japan last week unveiling a doubling in its monthly bond purchases. The currency yesterday reached 99.66 per dollar, a level unseen since May 2009, and it traded at 99.04 as of 11:21 a.m. in Tokyo.

China Comment

“In the long run the Japanese economy must undergo structural reform -- a relaxing of its currency policy cannot change this bad situation,” Gao Xiqing, president of China Investment Corp., his nation’s sovereign wealth fund, said at a forum in Beijing yesterday.

Quantitative easing policies adopted by Japan, the U.S. and Europe “which are based on their own domestic needs shouldn’t spill over and affect other nations,” then-Chinese Commerce Minister Chen Deming said on March 8.

Swan, who has been treasurer since 2007 and also serves as deputy prime minister, said he wouldn’t endorse “policies which aimed at pegging exchange rates for deliberate competitive advantage.” He said “I don’t see that in what is going on at the moment. I understand why some may, but that’s not my perspective on it.”

“I’m not excessively critical of the attempt by the Japanese to try and reflate their economy and get it growing again because the beneficiaries of growth in the U.S., the beneficiaries of growth in Japan are all those other countries out there that have been carrying the weight,” Swan said.

Hockey’s Stance

In contrast, Shadow Treasurer Joe Hockey told the conference today that Australia should defend its interests against quantitative easing in other nations.

“We need to take a more aggressive stand in the international forums to warn other countries that their quantitative easing and some of their policy directions are clearly distorting trade and commerce across the globe,” Hockey said. “It is having quite an impact on the Australian dollar versus other currencies.”

Japan’s Abe told the nation’s parliament today that he will continue “bold” monetary easing until his inflation target is reached. The Asian nation isn’t intentionally seeking to weaken the yen internationally, he said.

Auto Industry

The yen’s slide has helped buttress the competitiveness of Japanese exports to Australia, with sales of its cars reaching a record while sales of locally made vehicles slumped 18 percent in the past four years. The Aussie has appreciated 25 percent against the yen since the start of October 2008. Against its U.S. counterpart, Australia’s currency is less than 6 percent from the three-decade high of $1.1081 it reached in July 2011.

General Motors Co.’s Holden division said April 8 it will cut about 500 jobs in Australia, saying the strong local dollar and currency devaluations in competing markets had made operations in the nation among the most expensive in the world.

Australia’s strong currency, a deceleration in resource investment from a peak this year, and tightening of government spending are likely to hurt growth in 2013, central bank Assistant Governor Christopher Kent told the Bloomberg Summit today.

“The peak in resources investment is now close,” Kent said. “Once it has passed, the decline in mining investment -- and the effect of the still high level of the exchange rate and ongoing fiscal consolidation -- will weigh on economic growth.”

‘Enormous Pressure’

The currency’s strength has “put enormous pressure not just on the profits of mining companies, not just on the profits of exporters, but across the whole economy,” Swan said. The impact also has hurt the nation’s fiscal position, he said, with revenue “much lower than we anticipated. That is impacting not just in 2012-13 but across our forward estimates.”

Swan next month releases his annual budget. He reiterated today that while Prime Minister Julia Gillard’s government is committed to achieving a surplus over the medium term, it would be “irresponsible” to impose excessive spending cuts.

“I’m a real critic of what is going on in Europe at the moment, where I believe the pace of fiscal consolidation there is now too harsh,” Swan said. “You can’t defy the economic cycle in the short term and if your problems are caused - as they are in Europe - by a lack of demand, they need to take that into account in terms of the pace of their fiscal consolidation.”