Finance ministers from the world’s largest economies endorsed Japan’s recently launched easy-money policy Friday, downplaying previous concerns that the strategy could give Japan an unfair trade advantage.
“We discussed it, but not with the same amount of concern as this past February,” Russian finance Minister Anton Siluanov told reporters after chairing a meeting of the Group of 20 finance ministers and central bank governors. “It was discussed in a very calm manner.”
The G20 group of countries held a meeting here this week during the spring meeting of the International Monetary Fund and World Bank.
Japan’s central bank gets its first chance this week to respond to the challenge laid down by Shinzo Abe following his party’s landslide victory in a general election on Sunday. Investors are already betting it will flinch.
The Bank of Japan is due to hold its regular monthly policy meeting on December 19-20, giving investors and policymakers outside Japan their first glimpse into how the bank intends to stand up to Abe’s campaign pledge to push it into more radical economic stimulus measures, including a big increase in the kind of money-printing tactics already being employed by the U.S. Federal Reserve.
The bank’s response could influence global financial markets next year, potentially adding the world’s third-largest economy to the growing number of nations experimenting with a policy akin to printing money to revive growth and ease government debt. It will also signal how much independence the central bank can retain under the new government.
The dollar jumped to a 20-month high against the yen Monday after Japan elected a new prime minister over the weekend.
Traders sent the yen lower on concerns that new Prime Minister Shinzo Abe will push for a change in monetary policy.
Abe, Japans seventh prime minister in just over six years, said before he was elected that he wanted the countrys central bank to cut interest rates to zero or below to boost Japans economy. That move could weaken the yen.
The dollar rose to 83.83 Japanese yen late Monday from 83.46 late Friday. The dollar rose as high as 84.207 Japanese yen earlier, its highest point against the yen since April 13, 2011.
If Japans opposition the Liberal Democratic Party LDP headed by Shinzo Abe wins the December 16 polls, it is widely expected that an era of aggressive monetary easing will be unleashed in the country. But one expert says this will do little to prop up growth in the worlds third largest economy which is reeling under its fifth recession in 15 years.
“I dont think its going to work. QE quantitative easing is good at containing the downside, addressing crisis and disruptive markets, but it definitely doesnt give you traction in regenerating demand in the real economy,” Yale University senior fellow Stephen Roach told CNBC on Friday.
The Bank of Japan kept monetary policy steady on Tuesday after having eased for the second straight month in October, preferring to save its limited options for now as political pressure for bolder monetary expansion heightens ahead of a general election in December.
The central bank kept its assessment of the economy unchanged but warned of weakness in exports, output and capital expenditure due to a slowdown in overseas economies.
As widely expected, the BOJ kept its overnight call rate target unchanged at a range of zero to 0.1 percent by a unanimous vote and held off on expanding its asset-buying programme, its key monetary easing tool, from 91 trillion yen ($1.12 trillion).
The countrys exports plunged 10.3% in September from a year ago, dimming hopes of rapid recovery in the Far East. Exports to Europe crashed 21pc. Shipments to China fell 14pc as the Diaoyu-Senkaku islands dispute led to a slump in car sales. Honda, Mazda, and Nissan all saw sales plunge near 30pc as Chinese consumers boycotted Japanese brands. Nomura said the export slump will push country into full recession.Stephen Jen from SLJ Macro Partners said the global storm is drifting eastwards into Asia, opening a “third chapter” of the crisis that will last well into 2013. “Many analysts have declared that the low in the global economic cycle is in place. We are not convinced,” he said, prediticting a rise in currency protectionism.
Toyota roared back to a hefty profit in the first quarter and said on Friday that it intended to build a record-breaking 9.76 million cars this year, leading a recovery by Japanese automakers after a year of natural disasters and a punishingly strong currency.
Though the strong yen continues to weigh on the bottom lines of Japanese exporters, many other things are going right for Japanese automakers. Supply chains that were severed are now up and running, and manufacturers like Toyota and Honda, racing to meet pent-up demand, are fast regaining lost ground in profitable markets like the United States. Japanese government incentives on fuel-efficient cars have revived markets at home.
China’s move to make trading of its currency more flexible was a positive step that would help buoy the country’s domestic demand, a senior Japanese government official said on Monday.
Japanese officials also said Japan has yet to pledge its contribution to the International Monetary Fund, but was still considering an increase in funding to help it deal with Europe’s debt crisis while watching the stance of other countries.
China took a key step in turning the yuan into a global currency on Saturday by doubling the size of its trading band against the dollar, pushing through a crucial reform that further liberalises its nascent financial markets.
Japan said on Tuesday it had received approval from China’s government to purchase 65 billion yuan ($10.3 billion) in Chinese government debt in a move that can help Japan diversify its reserves away from the dollar and strengthen economic ties between the two Asian countries.
The timing of purchases hasn’t been set yet as Japan still needs to make some administrative preparations, but Japan is likely to start with a small amount and then increase purchases, Japan’s Finance Minister Jun Azumi said.
Japan will also consider the impact on financial markets when it decides the timing of its purchases, Azumi said.
Japan may have spent a record amount intervening yesterday to stem the yen’s gains, according to the Bank of Japan’s projection of deposits held by financial institutions at the central bank.
The BOJ estimated that deposits climbed 7.7 trillion yen ($99 billion) to a total 37.2 trillion yen, it said in a statement released today in Tokyo. The figure suggests that the government sold approximately 8 trillion yen yesterday after the currency strengthened to a post-World War II high, said Yuichi Takahashi, a market economist at Totan Research Co. in Tokyo.