Mike Peacock and Tetsushi Kajimoto London and Tokyo

Group of Seven (G7) nations reiterated their commitment yesterday to market-determined exchange rates and said fiscal and monetary policies must not be aimed at devaluing currencies.

The intervention follows a round of rhetoric about currency wars, prompted largely by Japan’s new government pressing for an aggressive expansion of monetary policy, which has seen the yen weaken sharply as a result.

The statement said the G7 powers – the US, Britain, France, Germany, Japan, Canada and Italy – had agreed to consult closely on exchange rates, which could hurt economic and financial stability if left to move in a disorderly fashion.

“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,” said the statement, released by Britain which chairs the Group of Eight (G7 plus Russia) forum this year.

Despite that, there is little suggestion that Tokyo is going to come under serious pressure when Group of 20 finance ministers and central bankers meet in Moscow at the end of the week, not least because the US is indulging in similar policies.

Japanese Finance Minister Taro Aso welcomed the statement, saying it recognised Tokyo’s policy steps were not aimed at affecting foreign exchange markets.

“It was meaningful for us as [the G7] properly recognises that steps we are taking to beat deflation are not aimed at influencing currency markets,” Aso said.

US Treasury official Lael Brainard said on Monday that while competitive devaluations should be avoided, Washington supported Tokyo’s efforts to spur growth and end deflation.

The dollar edged up to ¥94.21, from about ¥94.16 before the statement was issued.

US and EU officials have been concerned about comments from Japanese officials that suggest Tokyo is targeting a specific level for the yen.

Last week, France went as far as calling for a medium-term target to be set for the euro out of concern that the exchange rate had become too strong. Germany rejected that suggestion and said it did not view the single currency as being overvalued.

French Finance Minister Pierre Moscovici made little headway at a meeting of euro zone finance ministers on Monday.

Since late last year, the euro has climbed more than 10c to the dollar from less than $1.27 before subsiding in recent days after European Central Bank (ECB) president Mario Draghi indulged in a bit of gentle verbal intervention.

The US Federal Reserve and Bank of Japan are expanding their balance sheets rapidly by printing money, while the ECB’s balance sheet is tightening, partly due to banks paying back cheap money the central bank doled out last year. – Reuters