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U.S. Signals Support for Japan’s Yen Policy U.S. Signals Support for Japan’s Yen Policy
(about 1 hour later)
MOSCOW — Ben S. Bernanke, chairman of the U.S. Federal Reserve, on Friday strongly indicated that the Group of 20 industrialized nations did not intend to censure Japan for weakening its currency over the past several months, something that has aided Japanese exporting companies and angered its competitors. MOSCOW — Ben S. Bernanke, the Federal Reserve chairman, strongly indicated on Friday that the United States did not intend to censure Japan for weakening its currency over the last several months, something that has aided Japanese exporters and angered its competitors.
Mr. Bernanke, who has advocated loose monetary policy in the United States to stimulate the economy, suggested that distinctions should be drawn among the reasons a country was pumping money into its system, which could in turn weaken its currency. Mr. Bernanke spoke in brief introductory remarks at a conference in Moscow of the Group of 20, a club of the world’s largest industrial and emerging economies.
“The United States is using domestic policies to advance domestic agendas,” Mr. Bernanke said in brief introductory remarks at a conference in Moscow of the G-20, a club of the world’s wealthiest countries. “We believe that by strengthening the U.S. economy, we are helping to strengthen the global economy as well. We welcome similar approaches by other countries.” At issue are stimulus programs backed by Prime Minister Shinzo Abe, who is also maintaining pressure on the Bank of Japan to keep interest rates near zero and flood the economy with money to support Japanese manufacturers. As a result, the yen has lost about 15 percent of its value against the dollar over the last three months, meaning products produced in Japan, like some Sony electronics or models of Toyota cars, are relatively cheaper.
The comments come after a statement by the Group of 7 industrialized countries issued this past week caused turmoil in currency markets by suggesting that they would take a collective stand against any country that was intentionally weakening its currency. Japan’s maneuver touched off fears that other countries and the European Union might follow suit in a so-called currency war, which has been the main topic of the Group of 20 meeting here, which runs through Saturday.
At issue is a stimulus program under way in Japan to revive the country’s economy, which was begun last autumn by Prime Minister Shinzu Abe, who advocates supporting Japanese manufacturers through loose monetary policy. As a result, the yen has lost about 20 percent of its value against the dollar, meaning products produced in Japan, like some Sony electronics or models of Toyota cars, are relatively less expensive. Initially, it seemed the world’s largest economies might agree on a firm statement at the end of the meeting to condemn a currency war, or competitive devaluations. This tactic is now widely seen as a beggar-thy-neighbor approach to creating growth that would ultimately harm a global recovery and is understood to be a cause of the lingering nature of the depression in the 1930s.
Japan’s maneuver touched off fears that other countries and the European Union might follow suit in a so-called currency war, or competitive devaluations, which has been the main topic of the G-20 meeting here on Friday and Saturday. Mr. Bernanke, an advocate of the loose monetary policy in the United States known as quantitative easing, but also a student of the Great Depression, suggested a distinction should be drawn based on the intention of the monetary easing.
Mr. Bernanke said he endorsed an earlier statement at the meeting from Christine Lagarde, the director of the International Monetary Fund, who stated that the risk of a currency war was “overblown.” “The United States is using domestic policies to advance domestic agendas,” Mr. Bernanke said, speaking in a gilded and colonnaded chamber in the Kremlin to a round table of the world’s leading central bankers and finance ministers, in addition to President Vladimir V. Putin of Russia.
Initially, it seemed that the world’s largest economies might agree on a firm statement at the end of the G-20 summit meeting to condemn a currency war. That tactic is now widely seen as harming a global recovery, and is understood to be a cause of the lingering depression in the 1930s. “We believe that by strengthening the U.S. economy, we are helping to strengthen the global economy as well,” Mr. Bernanke said. “We welcome similar approaches by other countries.” He said he endorsed an earlier statement at the meeting from Christine Lagarde, the director of the International Monetary Fund, who had said the risk of a currency war was “overblown.”
But Reuters, citing an official that had seen a draft G-20 statement, reported earlier Friday that the communiqué did not single out Japan for censure. The global recovery has become unbalanced, Mr. Lagarde said in her statement to the group. Developed countries are swooning, while the emerging markets bounced back quickly, and yet such countries, including Russia, have been critical of the stimulus efforts of the developed nations. Japan’s devaluation of the yen is “sound policy,” she said.
In her statement to the group, Ms. Lagarde said the recovery in the global economy had become unbalanced. Developed nations are struggling to grow, while emerging markets have bounced back quickly after the financial crisis of 2008-9. Those countries, including Russia, have been critical of developing nations’ stimulus efforts. But Ms. Lagarde defended Japan’s efforts to weaken the yen, saying it was “sound policy.” “The international monetary system can function effectively if each country follows the right policies for their domestic economies,” she said, ultimately lifting the tide of the global marketplace, she said.
“The international monetary system can function effectively if each country follows the right policies for their domestic economies,” she said. That, in turn, should lift the tide of the global marketplace, she said.
Ms. Lagarde did caution that too bald a ploy to prop up exports would not count as a justified weakening of a currency.Ms. Lagarde did caution that too bald a ploy to prop up exports would not count as a justified weakening of a currency.
Germany’s finance minister, Wolfgang Schäuble, offered a contrarian view, saying that countries should not count on easy monetary policy to help reduce their deficits over the long term while avoiding steps to reduce spending. Because loose monetary policy encourages economic growth while also helping exports, critics of such tactics say these are distinctions without a difference.
The Russian finance minister, Anton Siluanov, the host of the meeting, has also been pushing for the forum’s final communiqué, which is expected Saturday, to include a strong statement against competitive devaluations. Mr. Siluanov said in his opening remarks that a statement allowing markets to set exchange rates would find “a place in the communiqué.” Germany’s finance minister offered a contrarian view, saying that countries should not use easy money to avoid reducing their deficits over the long term, with measures like reducing government waste.
The Russian finance minister, Anton Siluanov, the host of the meeting, has also been pushing for a strong statement against competitive devaluations in the final communiqué from the forum, expected Saturday. Mr. Siluanov said in his opening remarks that a statement endorsing market mechanisms to set exchange rates would “find a place in the communiqué.”
That reiterated the position of a statement issued by the Group of 7 earlier this week. But it now seems a watered-down version is more likely.