Conspicuous by its absence.


During the 18th and 19th of April, finance ministers and central bank governors of the G20 met in Washington. It goes without saying that such a large forum with so many participant is unlikely to result in very strong statements about very much. Given the recent potential for acrimonious relations between countries as a result of blatant devaluation attempts by various governments all over the world at this time, any statement from the G20 would need to appear benign in nature so as to not unduly unsettle capital markets. They are of course perfectly capable of unsettling themselves.

At any rate, Japan’s recent 20% devaluation of its currency was bound to come up in this forum, and as we have stated before, we here at NipponMarketBlog have been perplexed by the apparent lack of reaction from other countries to this devaluation. Afterall, it is the effectuation of a unilateral beggar-thy-neighbour policy that can only end up effectively transferring wealth from Japan’s trading partners to Japan.

Apparently, global financial and economic bodies such as the IMF (which has made supportive noises about the Yen’s fall) and now the G20 are so worried about global growth prospects that they are prepared to accept unilateral devaluation, i.e. currency wars, if that is what it takes to kick-start growth somewhere – anywhere. In a sense, it is now every man for himself – or rather, every country for itself. It seems to NipponMarketBlog that the participants are forgetting that it is ultimately a zero sum game.

In the minutes released from the meeting, there was no explicit mention of the Yen devaluation, even if it was a direct and calculated result of the BoJ’s recent policy announcement about a doubling of the BoJ’s JGB purchases and thus increase in the money supply. The only statements coming out of the G20 meeting that could be aimed at Japan were these:

“We have agreed that while progress has been made, further actions are required to make growth strong, sustainable and balanced. Some countries have taken steps to stimulate activity since we last met. In particular, Japan’s recent policy actions are intended to stop deflation and support domestic demand.

Also, “Japan should define a credible medium-term fiscal plan.”

And finally: “We reiterate that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability.  Monetary policy should be directed toward domestic price stability and continuing to support economic recovery according to the respective mandates of central banks. We will be mindful of unintended negative side effects stemming from extended periods of monetary easing.”

Clearly, there was no explicit pointing the finger at the BoJ for excessively interfering with exchange rates, but it is clear that there is unease amongst other members of the G20 about the scale and pace of what the BoJ is doing vis-a-vis exchange rate movements. Outwardly, everything is still being framed in terms of an attempt at stimulating domestic demand, even if everyone knows that currency devaluation is a significant part of the equation. We will have to wait and see whether this apparent global solidarity can persist.

As a result of this apparent lack of opposition to the fall in the Yen, currency markets on friday took that as their queue to start selling the Yen again. The USD/JPY looks set to make another attempt at 100 Yen to the dollar next week after the initial surge starting on the 4th of April, and then subsequent retracement until the 15 of April.



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