G-20 Summit In Russia: Officials Defuse Currency War, Japan Not Singled Out

The two-day meeting in Moscow ended on Saturday with a promise that the G-20 members, which represent almost 90 percent of the world's economy, would "refrain from competitive devaluation,” “resist all forms of protectionism" and "keep our markets open.”

"We reiterate that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability," the statement said.

The wording was closer than expected to a joint statement issued last Tuesday by the Group of Seven, or G7, rich nations that backed market-determined exchange rates.

“Currency wars are globally suboptimal because if one country devalues its currency, the other country can strike it and everybody gets in a circle,” Reserve Bank of India Governor Duvvuri Subbarao told reporters in Moscow on Saturday, according to Bloomberg News.

Japan has faced suspicion of trying to depreciate its currency as new Prime Minister Shinzo Abe campaigned for looser monetary policy to end 15 years of deflation. Since his election, the Bank of Japan has adopted a 2 percent inflation goal and paved the way toward open-ended asset purchases.

Over the last three months, the Nikkei 225-share index has risen 30 percent, while the yen has weakened by 15 percent against the dollar. This has triggered a fresh round of debate about currency manipulation and competitive devaluation. A cheaper currency tends to help a country’s exporters sell their goods abroad.

Japanese officials in Moscow denied driving down their currency, arguing its fall was a byproduct of their effort to jump-start the world’s third-largest economy and that its success would benefit trading partners.

“Japan’s monetary policy is focused on ending deflation and stabilizing the domestic economy by achieving sustainable growth under price stability,” Bank of Japan Governor Masaaki Shirakawa, who will retire next month, told reporters in Moscow. “The biggest factor for a weak yen is a change in global investors’ stance to avoid risks.”

"We stick to our policy, and consequently [the weakening of the yen] happened. But that was not our target. Our target is getting out of recession and deflation,” Finance Minister Taro Aso said Friday in Moscow.

Indonesia, a fast-rising Asia-Pacific economy, said it was also less concerned about the falling yen than about Japanese recovery. "If the Japanese increase their domestic demand it will help Indonesia, especially from the export side," said Hartadi Sarwono, deputy central bank governor, Reuters reported.

Such points echo those made by U.S central bankers who have run into criticism from emerging markets such as Brazil for embracing stimulus, which has undermined the dollar. Federal Reserve Chairman Ben Bernanke, in brief remarks at a meeting Friday in Moscow, made it clear that he sees a difference between a deliberate attempt to weaken one’s currency and currency weakened as a byproduct of actions taken to help one’s domestic economy.

“With unemployment at almost 8 percent, we are still far from the fully healthy and vibrant conditions that we would like to see,” Bernanke said, according to Bloomberg News. “The U.S. is using domestic policy tools to advance domestic objectives.”

The Fed is now engaged in its third round of quantitative easing, or QE3, buying $85 billion worth of Treasury and mortgage-backed securities a month, in addition to keeping short-term rates near zero.

Bernanke added: “We believe that by strengthening the U.S. economy we are helping to strengthen the global economy as well.”