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G20 Avoids Criticizing Japan, Yen Continues Fall

G20 Avoids Criticizing Japan, Yen Continues Fall

Leaders of the Group of 20 nations indicated support for Japan over the weekend by avoiding direct criticism of the government's aggressive plans aimed at ending deflation and gaining competitive advantage, which have led the yen further lower. Finance ministers and central bank governors signaled that Japan has scope to continue its policies to stimulate growth, but with limited ability to give verbal guidance on the currency's depreciation.

The yen lost 0.66 percent on Monday to 94.17 against the U.S. dollar, nearing the 33-month low of 94.47 set on February 11. The pair closed last week's deals at 93.55. Against the euro, the Japanese currency slipped to a 4-day low of 125.71.

"The fall-out from an extended period of monetary expansion in the U.S. and Japan will continue to ripple around the global financial system, not least in the form of capital flows to emerging markets," Capital Economics Chief Global Economist Julian Jessop said.

"But the G20 statement should allow the focus to move on from the hype about "currency wars"."

At the meeting that concluded in Moscow on Saturday, G20 leaders agreed to keep their monetary policies focused on price stability and growth without manipulating currencies, allaying fears that the world is again on the verge of currency wars.

"We will not target our exchange rates for competitive purposes, will resist all forms of protectionism and keep our markets open," they said in a communique.

Last week, the Group of Seven finance ministers and central bankers reaffirmed their commitment to market determined exchange rates in a bid to calm rising fears of a global currency war.

Meanwhile, Standard & Poor's on Monday reaffirmed its credit ratings on Japan, citing the sovereign's strong external position and a recovered financial system. The long- and short-term credit ratings was confirmed at AA- and A-1+, respectively. The outlook on the long-term ratings remained 'negative.'

Separately, Prime Minister Shinzo Abe said today that if Japan is unable to attain the 2 percent inflation target, there may be a need to revise the law governing the central bank. He also clarified that the recent policy moves are not directly aimed at weakening the yen, but are just one of the many factors influencing the exchange rate.

The Japanese yen has fallen sharply against the dollar in recent months. Analysts expect the yen weakness to continue for some time as the government and the central bank under a new chief are likely to favor aggressive easing.

"Monetary policy should be directed toward domestic price stability and continuing to support economic recovery according to the respective mandates," G20 said.

"We commit to monitor and minimize the negative spillovers on other countries of policies implemented for domestic purposes."

Markets are now focused on Abe's selection of the new Bank of Japan Governor. Japanese stock markets climbed higher on Monday with both the Nikkei and Topix indexes rising as investor sentiment was boosted by the G20 statement.

by RTT Staff Writer

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