13th February 2013
Initially the G7 issued a statement saying fiscal and monetary policies would not be directed at devaluing currencies. Japan then claimed that the communiqué suggested that Japan’s stance on currency passed muster. But then an unnamed official suggested that the opposite was the case and that the larger G20 would have more to say.
The officiail said: “The G7 statement signaled concern about excess moves in the yen. The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend.”
For those worried about the prospects of currency wars or not, we think these comments from F&C’s director of global strategy Ted Scott make sense. In essence, Mr Scott is suggesting that what really matters are what the world’s two global economic giants China and the US think.
In a recent note, Scott writes: “The G7 issued a communiqué that “fiscal and monetary policies would not and did not target exchange rates”. This was later contradicted by an unnamed official who said the message had been misinterpreted and it was designed to signal concern at the recent depreciation of the Japanese yen. This caused the yen to strengthen on the forex markets and the Nikkei to fall. However, ultimately it will not be the bleating of South Korea or France that will decide whether Japan will continue to deliver an economic policy for which an inevitable by-product is a weaker currency, but the attitude of the two global economic giants, China and the US. So far, both have indicated that they support Japan’s reflationary policy.”
Scott seems to think Japan may, just, be getting away with it. But we might ask what about the UK?