G-7 frets over currency devaluation race+

WASHINGTON, Oct. 9 Kyodo - Debate among financial chiefs from the Group of Seven industrialized economies intensified Friday amid concerns that efforts to ensure sustainable economic recovery could be undermined by some countries racing to devalue their currencies, which has spurred talk of a ''currency war.''

The G-7 finance ministers and central bankers, who met over dinner in
Washington on the sidelines of the annual meetings of the International
Monetary Fund and World Bank, confirmed that they will cooperate in prodding
emerging economies with trade surpluses, such as China, to introduce a more
flexible foreign exchange rate policy.
The meeting did not generate any joint statement. The G-7 has stopped releasing
communiques, as the broader Group of 20 framework has gained predominance as an
international forum to discuss global economic and financial issues.
''We had various discussions on foreign exchange,'' Japanese Finance Minister
Yoshihiko Noda told reporters after the meeting.
Noda said earlier in the day that competition among economies to weaken their
currencies and keep their exports competitive ''is negative to the global
economy, as shown by history,'' suggesting the G-7 may need to collaborate on
the creation of a new system to ensure market stability.
Other ministers have also aired their concerns about the current developments.
U.S. Treasury Secretary Timothy Geithner said Friday at an IMF-World Bank
meeting that efforts to ensure sustainable economic recovery are ''at risk of
being undermined by the limited extent of progress toward more domestic
demand-led growth in countries running external surpluses and by the extent of
foreign exchange intervention as countries with undervalued currencies lean
against appreciation.''
French Finance Minister Christine Lagarde reportedly said that she would like
to talk about ''peace and not war'' at the G-7 meeting.
The G-7 groups Britain, Canada, France, Germany, Italy, Japan and the United
States.
Japan explained to its peers the necessity of currency interventions to ease
excess volatility, as carried out by its monetary authorities last month to
weaken the yen in the first such move in more than six years. Noda said Tokyo's
action had not been aimed at guiding the yen to certain levels, adding it will
not stage a large-scale, long-term intervention.
The Japanese currency rose to a fresh 15-year high of 81.72 yen to the U.S.
dollar on Friday in New York on prospects of further monetary easing by the
U.S. Federal Reserve to fire up the country's economy. The yen has rebounded
from the 85 yen level, marked right after the Japanese government stepped into
the market on Sept. 15.
In addition to China, some other emerging economies have been regarded as
active in weakening their currencies, including South Korea. Next month it will
host a G-20 summit, which will be joined by leaders from both developed and
major developing economies, including China and India.
The G-7 faces the challenge of finding unity and preventing the growing
tensions over currency policy from becoming an additional weight on the global
economy ahead of the summit on Nov. 11-12.
As for the Chinese currency, the United States has raised its pressure on
Beijing to allow the yuan to appreciate at a faster clip. The Japanese
intervention has drawn some flak from U.S. and European lawmakers who said it
would complicate their efforts to encourage China to adopt a more flexible
currency policy.
Bank of Japan Governor Masaaki Shirakawa also attended the dinner meeting in
Washington.
Shirakawa told reporters that he had briefed G-7 members on the central bank's
latest monetary easing to sustain Japan's economic recovery.
The BOJ said Tuesday it returned to a de facto zero-interest-rate policy and
will study establishing a fund to boost liquidity in the economy and support
business activities by facilitating the funding of companies.
==Kyodo