G7 warns over global economy as currency row flares

Participants at the G7 finance ministers and central bankers meeting pose for a family picture, ahead of the meeting at Aoba Castle in Sendai | Photo: Reuters
G7 finance ministers today voiced concern about the sputtering global economy as they looked for a plan to stoke growth, while a currency policy clash overshadowed their meetings.

The club of rich nations also pledged to tackle tax avoidance in the wake of the Panama Papers investigation and beef up efforts to disrupt the murky world of terrorism financing.

Two days of talks at a hot spring resort in northern Japan focused on how to stoke global growth which they said was under threat from myriad challenges, including terrorism, refugee flows and the threat of Britain's exit from the European Union.

The ministers were unanimous in opposing the prospect of a "Brexit", saying it would inflict a "shock" on the global economy that would only worsen the outlook at a time of geopolitical instability.

Host Japan was keen to get its G7 counterparts on board with the view that fiscal stimulus is the best way to kickstart global growth, but Germany and Britain were cool on the idea.

Today, the group suggested a go-your-own-way approach.

"(We) discussed how to employ a balanced policy mix – monetary, fiscal, and structural – taking into account country-specific circumstances," they said in concluding remarks.

Japan's determination to tame the resurgent yen was another sensitive topic, after its repeated threats to intervene in forex markets put it on a collision course with its G7 counterparts.

The yen has seen several steep jumps since the start of the year, soaring more than 10% against the greenback at one stage, in a blow to Japan's exporters just as the economy slowed.

US Treasury Secretary Jacob Lew kept up the pressure Saturday with a fresh warning, reminding Japan that previous commitments to "refrain from competitive devaluation and communicate closely have helped to contribute to confidence in the global economy".

In a statement which presented a clear rebuff to Japan, the group "underscored the importance of all countries refraining from competitive devaluation".

In response, Japanese finance minister Taro Aso said today that he told his US counterpart that Tokyo was merely reacting to "one-sided, abrupt, and speculative moves" in forex trading.

A softer currency has been one of the pillars of Japanese Prime Minister Shinzo Abe's bid to revitalise the world's number-three economy since he swept to power in late 2012.

Japan last intervened in currency markets around November 2011, when it tried to stem the yen's rise to keep an economic recovery on track after the quake-tsunami disaster earlier that year.

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