FINANCE: Japan Gets Little Help from G-7, Critics Say

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Jan 25 2000 (IPS) - The weekend summit among finance ministers of the seven richest countries in the world might have made a good photo opportunity, and many analysts here say that was virtually all it was.

“There were no clear directions sent out by the G-7 to address important issues such as measures to develop more stable exchange rates and economic policies to ensure a dynamic growth in the new millennium,” said senior analyst, Hideaki Ota, at Nomura Research Institute, a leading financial institution in Tokyo.

Other analysts say officials of the six industrialised countries now seem more concerned about their expanding economies than the plight of Japan, and wanted to ensure it continues to spend to prop up the economy.

Financial officials of the Group of Seven industrial nations released a statement at the end of Jan 22 that promised to preserve conditions conducive to sustainable growth by maintaining strong fiscal conditions, prudent monetary policy and encouraging more national savings in the United States.

The statement also included a section on exchange rates that acknowledged concern about the rising yen as being an obstacle to Japanese exports, and thus hindering Japan’s fledgling economic growth.

Japan has forecast growth of one percent in the fiscal year 2000 from 0.6 percent in the previous one, though finance officials from the U.S. and other countries say the one percent target is way too little.

Policy coordination over the yen’s rise against the dollar was widely reported to being the biggest issue at the meeting, attended by the United States, Japan, Britain, Italy, France, Germany and Canada.

But in the days following the weekend meeting, commentaries in Japan argue that ministers showed no signs of making a bold statement to prop up the dollar against the yen, a move that Japan had been hoping for badly in order not to hurt the economy further.

The yen has gained 10.8 percent against the dollar last year, prompting fears here it would threaten what progress is being made to revive the economy. A stronger yen — it was hovering between 120 and 130 to the dollar at the close of 1999 — puts pressures on exporters to choose between smaller revenues or hiking prices.

“The yen is being traded at 105 against the dollar and American and European finance ministers think this is not a bad exchange rate given indications in Japan that the economy is recovering,” explained Richard Koo, chief economist at Nomura Research Institute.

Finance Minister Kiichi Miyazawa was rewarded with few promises to intervene in the recent rise of the yen.

Some experts, looking back at the weekend meeting, say the G-7 statement showed how the six industrialised economies were more preoccupied about themselves and their improving economic figures than extending a hand to Japan.

“The other G-7 members see the yen’s rise differently. The US does not want Japan to continue with an export-led economic recovery through a weaker yen. And European countries appear content with the current exchange rates as well,” said Professor Yoshihiko Kano, who teaches economics at Takushoku University.

Japanese analysts point out that the G-7 statement was particularly vague when it came to developing policies to meet a possible crash in the current heated U.S. economy.

“This is a topic of wide concern in the developing economies of Asia whose main export market is the United States,” says Ota.

The US buys 26 percent of merchandise from Asia, three times more than Japan does. If there is a slowdown in the American economy, Asian economies that are now starting to recover from a financial crunch, will be badly affected.

Analysts here contend the weak references to the widely expected slowdown in the American economy comes against Washington’s outlook that the possible downturn will not be dramatic but a smooth ongoing process that will not affect the world badly.

“But that could not be the case,” points out Ota. “Nobody is really sure of what kind of downturn will occur. The G-7 has not made the situation clear either,” he says.

Firm commitment to working out more stable exchange rates is also an important concern for Asia, which was battered with a financial crisis as a result of a sudden drop in its currency exchange rates and whose effects are still being felt today.

A weaker Japanese economy will also be of little help in boosting Japanese investment in Asia. Japanese banks abruptly ceased new lending to Asia during the financial crisis that struck in 1997.

However, Ota explains that a strong yen is in some ways actually favourable to Asian economies that will be able to concentrate their exports to Japan.

But, again, “we see no discussion in the G-7 on this issue”, he says. Ota explains that the “weak” G-7 statement is indicative of how preoccupied the richest industries with their own economic concerns rather than concentrating more on directing new world trends.

“The G-7 paid more lip service to each other. This goes to show that more gets done in regional settings such as ASEAN and Japan meetings and EU discussions,” he explains, perhaps reflecting an increasing tendency among intellectuals and policymakers to think in Asian, or regional terms.

Indeed, Japan’s concern for stable exchange rates is shared more closely with its Asian neighbours, which discussed the issue closely during the an Association of South-east Asian Nations meeting with Japan, South Korea and China in November.

Japan’s Finance Minister Kiichi Miyazawa also reiterated during a meeting sponsored by the Asian Development Bank Institute in December 1999, the need to step up joint efforts among Asian nations to maintain financial stability in the region.

In his speech, he called on Asia to mobilise its underutilised savings to prop up regional financial markets.

Further, Miyazawa suggested the need for a new regional currency regime that “would allow exchange rates within the region to be interdependent and stable, reflecting economic fundamentals”.

“The G-7 is becoming increasingly, more a gathering for pictures rather than a meeting that can be billed as leading the world,” concludes Ota.