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January 23, 2013 10:50 am
Japan’s government has denied that it is trying to revive the country’s economy at the expense of its trading partners by intentionally weakening the yen, defending a new and more assertive monetary policy that some critics have warned could lead to “currency war”.
Akira Amari, economy minister, hit back against admonishments by Jens Weidmann, the president of Germany’s Bundesbank, and other officials in Germany as well as the UK, who have raised concerns about the political pressures that led the Bank of Japan to ease its policy this week.
In an interview with the Financial Times on Wednesday, Mr Amari rejected Mr Weidmann’s characterisation of the Japanese moves as “alarming infringements” of central bank independence that could lead to “politicisation of the exchange rate”.
“Germany is the country whose exports have benefited most from the euro area’s fixed exchange rate system. He’s not in a position to criticise,” Mr Amari said.
Japan’s new prime minister, Shinzo Abe, is pushing the BoJ to take stronger measures to support the economy and end consumer-price deflation, which has dogged the country for much of the past two decades.
His effort is seen as a primary cause of the yen’s 10 per cent drop against the dollar and 14 per cent tumble against the euro since November, when the election that brought him to power was called.
On Tuesday, the central bank extended indefinitely its programme of buying up government bonds and set a target of 2 per cent inflation, reaching beyond what had been a flexible “goal” of 1 per cent.
Mr Amari rejected the notion that Japan was trying specifically to weaken the yen, saying its efforts were aimed at reviving the domestic economy and reversing price declines.
“The market is in the process of correcting on its own from an excessively strong yen,” he said. “We aren’t guiding it, we aren’t doing anything.”
After the BoJ’s decision, Michael Meister, a senior member of Germany’s ruling Christian Democratic Union, said Germany might seek support from fellow G20 nations to pressure Japan to reverse course. Sir Mervyn King, Bank of England governor, also warned of the risk of competitive currency devaluations – dubbed “currency wars” since the US adopted unorthodox measures to ease monetary policy in 2010.
China added to the criticism on Tuesday. In a harsh editorial, the official Xinhua news agency said the “decision to crank up money printing presses is dangerous” and could lead to “currency wars” that could knock the global economy off track.
Mr Amari countered that the world would benefit if Japan’s economy strengthened and Japanese began buying more foreign goods. “Japan can’t simply be carried along by other countries’ consumption,” he said. “We have to strengthen our own economic foundation so we can be a global leader.”
He said the government had taken an important step in that direction by announcing Y10.3tn of stimulus spending this month. Japan has the highest public debt among developed countries, at more that twice annual economic output, but Mr Amari said previous austerity measures had only made matters worse by depressing the economy and, by extension, tax revenues.
Masaaki Shirakawa, the BoJ’s governor, is to retire at the end of March and Mr Abe is expected to install a more dovish replacement.
Mr Amari said that, in addition to being “strongly committed” to co-operating with the government, the next governor should be a skilled communicator with a good command of English who can explain Japanese policy to foreign leaders and financial markets.
If Mr Abe agrees, it could favour candidates with international experience such as Haruhiko Kuroda, a former finance ministry official who heads the Asian Development Bank.
“English is a necessary but not sufficient requirement,” Mr Amari said.
Additional reporting by Simon Rabinovitch
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