G20 takes harder line on currencies

G20 finance chiefs sharpened their stance against governments trying to influence exchange rates as they sought to tame speculation of a global currency war without singling out Japan for criticism.

Two days of talks between G20 finance ministers and central bankers ended in Moscow on Feb 16 with a pledge not to "target our exchange rates for competitive purposes", according to a statement. That's stronger than their position three months ago and leaves Japanese officials under pressure to stop publicly giving guidance on their currency's value.

With the yen near its lowest level against the dollar since 2010, policy makers are attempting to soothe concern that some countries are trying to weaken exchange rates to spur growth through exports. The risk is a 1930s-style spiral of devaluations and protectionism if other countries retaliate to safeguard their own economies.

"Politically-motivated devaluations can't sustainably improve competitiveness; they don't solve structural problems and they set off reactions," Bundesbank President Jens Weidmann said. "The clear language in the communiqu underlines this unity and will allow the debate in the future to take place with a less excited tone."

The new commitment is probably aimed at telling the Japanese that while they can stimulate their economy, they shouldn't point to specific yen levels as desirable, said Chris Turner, head of foreign-exchange strategy at ING Groep NV in London. While the currency may initially climb this week, it will soon resume its slide toward 100 per dollar from 93.50 as the Bank of Japan keeps easing policy, he said.

"It makes it harder for the Japanese to talk down the yen but they will let their policies do the talking," said Turner.

Japan has faced suspicion it's trying to depreciate its currency, which lost about 7 percent this year as Prime Minister Shinzo Abe, who took office in December, campaigns for looser monetary policy to end 15 years of deflation.

Japanese officials in Moscow denied driving down their currency, arguing its fall was a byproduct - not a focus - of their effort to revive the world's third-largest economy.

"The Bank of Japan's measures have been and will remain targeted at achieving a robust economy through stable prices," Bank of Japan Governor Masaaki Shirakawa said. The G20 statement is "absolutely in the same spirit as our monetary policy", he said. Finance Minister Taro Aso said a stronger Japan would "have a positive impact on the global economy".

That stance won support in Moscow.

"There was no censure of the Japanese attitude, which was considered a policy to develop its economy and not to intentionally devalue," said Brazilian Finance Minister Guido Mantega, who popularized the term "currency war" in 2010.

"Talk of currency wars is overblown," said International Monetary Fund Managing Director Christine Lagarde. "People did talk about their currency worries."

The Japanese defense echoes comments by United States central bankers, who have run into criticism from emerging market officials such as Mantega for embracing stimulus, which has then undermined the dollar and strengthened other currencies.

Previous reports on G20

China's growth contributes to global prosperity

G20's 'same-boat' spirit

G20 has confidence in eurozone

Added value key to countering protectionism

Strengthening solidarity