GYEONGJU, South Korea (MNI) – Japanese Finance Minister Yoshihiko
Noda said Saturday that the latest Group of 20 accord means that Japan
and its economic allies will coordinate their policies with an even more
watchful eye on excessively rapid movements in foreign exchange rates.

Tokyo’s policy to take firm action on excessive fluctuations in
foreign exchange rates, if necessary, remains unchanged, Noda told
reporters at a press conference following the two-day meeting of the G20
finance ministers and central bank governors.

“I have always expressed my view that while deflation continues and
the economic climate remains severe, a prolonged appreciation of the yen
would not be good, and that excessive movements would have a negative
impact,” he said.

“From the viewpoint of suppressing excessive fluctuations, we
intervened last time. And our stance that we will take appropriate, firm
action when necessary has not changed.”

Noda said the G20’s pledge that advanced economies “will be
vigilant against excess volatility and disorderly movements in exchange
rates,” as stated in its communique released on Saturday, means that it
is stepping up its coordination.

“I think being ‘vigilant,’ not just saying excessive movements are
undesirable as in our previous statement, means that we will be watching
market developments and conducting appropriate coordination when
necessary. We were able to share the awareness and I believe it is a
step forward,” he said.

He added that coordinated action would not be limited to currency
intervention.

The Group of Seven major nations understands Japan’s forex policy,
he said.

He stressed that the large-scale intervention orchestrated by the
MOF to sell yen for dollars in September, the first in over six years,
was not aimed at achieving certain levels nor represented a long-term
campaign to make its currency cheaper to gain export competitiveness.

He said there are “various reasons” for the G20 members to step
into forex markets.

He was referring to the point that the G-7 countries maintain
floating exchange rates and conduct only “smoothing operations” in forex
markets, while China is still managing the exchange rate under a less
flexible system.

Japan has let its currency appreciate by nearly 40% in nominal
effective terms while its economy was being hit by the global financial
crisis after its longest post-war growth expansion ended in late 2007.

Japan is still fighting stubborn deflation as the rapid rise in the
yen boosts its purchasing power but depresses consumer prices through
lower import costs and undermines its modest export-led economic
recovery.

In other comments, Noda repeated his skepticism of the proposal by
U.S. Treasury Secretary Timothy Geithner that G20 member economies’
current account imbalances — whether they are in surplus or deficit —
should be capped within 4% of their GDP by 2015.

While Geithner’s idea was backed by some G20 member states,
including G20 chair South Korea and Canada, others expressed concern
that it would be difficult to control current accounts because they
comprise not only merchandise trade but also capital and service
accounts.

Depending on business cycles and degrees of economic development,
imbalances are caused by different factors, these skeptics argued.

“As I said yesterday, my first impression was that I would be
skeptical about setting a strict numerical target,” Noda said.

“But at the same time, I thought a certain reverent point would be
necessary in order to reduce external imbalances. I also thought we
might have to consider the current account as an idea in order to have a
G20 consensus because the lack of it would cause unforseen market
movements.”

“So I told them (other G20 members) that I wouldn’t mind it if it
would be a reference measure,” he said.

He said more time is need to examine whether current account
balance is a good measure and if there are any other important data that
should be considered, such as demographics.

“The current account balance is a tail-end result of various
economic activities, including those by the private sector, which is
different from the fiscal balance that we can control,” he said.

A strict quantitative measure would mean a clear commitment by
member countries and thus if they failed to hit the target, they would
be criticized by other G20 countries, Noda has said.

The “indicative guidelines to be agreed” that will be used to
assess “persistently large imbalances” among the Group of 20 major
economies would not be thrashed out by the G20 leaders’ summit in Seoul
on Nov. 11-12 because the group needs more time for further research
what would be good measures, he noted.

msato@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$J$$$,M$A$$$,MGJ$$$,MT$$$$,M$$FX$,MI$$$$,M$U$$$]