Japan should not rely on yen's depreciation

The government and the Bank of Japan have assumed a greater responsibility in overcoming deflation and putting the country on a path toward steady economic recovery.

Finance ministers and central bank heads from the G-20 countries – which include Japan, the US, some European nations, China and Russia – adopted a communique on Friday at the end of a two-day meeting in Washington.

The statement first mentioned Japan, whose recent monetary moves were seen as a major issue during the meeting.

“Japan’s recent policy actions are intended to stop deflation and support domestic demand,” the joint statement said, referring to the quantitative and qualitative monetary easing policy that newly appointed BOJ Governor Haruhiko Kuroda has forged.

The rapid pace of the yen’s depreciation is a result of what some call “another level’ of monetary easing policy, which has prompted criticism from South Korea and other countries.

However, the policy is aimed at pulling the nation out of deflation, not intentionally weakening the yen to boost exports. It is commendable that Japan was able to gain some degree of understanding concerning its stance from other G-20 members.

The statement expressed a grim view on the global economy, saying, “Global growth has continued to be too weak” mainly because of fears that Europe’s credit unrest may stir once again as the continent has marked a negative growth rate.

The G-20 members accepted Japan’s stance apparently because they share a sense of crisis over the global economy and agree that the nation’s efforts to boost growth may have positive international repercussions.

It was also significant that G-20 officials reaffirmed they will “refrain from competitive devaluation”, in which currencies are guided lower, which was also discussed at the last meeting of G-20 finance ministers and central bank heads in February.

The nation has successfully averted criticism over the weakening yen from emerging economies and other G-20 members, at least for now. However, similar criticism may re-emerge if Japan constrains its focus to the monetary easing policy and depreciation of the yen as measures to improve the economy.

Japan will need to continue seeking other countries’ understanding concerning its revitalisation strategies and produce results in its efforts to vanquish deflation as soon as possible.

Prime Minister Shinzo Abe has unveilled the first package of measures for his growth strategy, the “third arrow” of “Abenomics” following monetary easing and fiscal policy. The measures aim to maximise opportunities for young people, create more jobs for women and expand the nation’s medical industry.

We hope Abe will take the results of the G-20 meeting as an opening to compile additional measures.

However, the G-20’s communique also said, “We will be mindful of unintended negative side effects” stemming from the monetary easing policies of Japan, the US and Europe. This declaration should be taken to heart.

Some emerging countries have complained that speculative funds, which have posted huge gains recently due to the monetary easing policies of the developed countries, have been overheating their financial markets. Japan should work with the US, Europe and other parties to monitor any additional side effects that their policies could cause.

It was natural that the joint statement took aim at Japan by saying it “should define a credible medium-term fiscal plan”.

Japan has the worst fiscal situation of all developed countries. Fiscal stimulus measures may be acceptable for an immediate economic boost, but the nation must be careful not to lose international confidence due to efforts that are remiss in addressing fiscal reconstruction over the medium term.