Japan policy sparks fears of ‘currency war’
DAVOS, Switzerland (AFP) – Japan’s controversial new economic policy emerged as one of the hot topics at this year’s Davos forum, with talk of currency wars and strong rebuttals from Japanese officials.
The new government in Tokyo, led by Shinzo Abe, has pushed the Bank of Japan (BoJ) to step up efforts to battle nearly two decades of deflation and sluggish growth in the world’s third-largest economy.
The BoJ on Tuesday unveiled a new inflation target of two per cent and a massive programme of asset purchases to pump money into the economy, sparking accusations it had bowed to political pressure and compromised central bank independence.
The new government policy has also led to a steady decline in the value of the yen against other currencies – boosting exports – but other countries have expressed concern that Tokyo is pursuing a beggar-thy-neighbour approach.
No less an authority than German Chancellor Angela Merkel got the ball rolling in Davos when she complained – in typically under-stated fashion – that she was “not without some concern about Japan right now.”
She also appeared to warn Tokyo that its actions were not going unnoticed on the world stage, saying there was an increasing awareness of what she called “political influences or manipulations of the exchange rate.”
This sparked a furious reaction in Tokyo with Finance Minister Taro Aso telling reporters that such accusations were “completely off the mark.”
In an unusual ministerial comment on foreign exchange rates, French Finance Minister Pierre Moscovici also told a panel at the Swiss ski resort that the level of the euro “is high and it creates some problems.”
But Japanese officials hit back, arguing that some intervention was required to reverse years of an overly strong yen harming the economy.
Japan’s minister in charge of economic and fiscal policy, Akira Amari, travelled to Davos to insist that the BoJ had “voluntarily” decided to introduce the new target.
He also stressed “it was up to the markets” to set the appropriate exchange rate.