G7 Inches Closer to Currency War

Reuters: U.S., Japan disagreement on yen moves overshadows G7 meeting

Japan and the United States are at logger-heads over currency policy with Washington saying Tokyo has no justification to intervene in the market to stem yen gains, given the currency's moves remain "orderly".

The rift was on full show at the G7 finance leaders' meeting in Sendai, northeastern Japan, with U.S. Treasury Secretary Jack Lew saying he did not consider current yen moves as "disorderly" after a bilateral meeting with his Japanese counterpart.

"It's important that the G7 has an agreement not only to refrain from competitive devaluations, but to communicate so that we don't surprise each other," Lew told reporters on Saturday. "It's a pretty high bar to have disorderly (currency) conditions.

The whole system is disordered, and finance ministers greatest fear is upsetting the balance. The Obama administration's only concern is making it to January 20 without the wheels falling off.

While Aso said his G7 counterparts reaffirmed the importance of exchange-rate stability, Japan received no public endorsements from other G7 members for intervention to contain "one-sided" yen rises.

"There is a consensus that monetary policy is well-adapted and there are no big discrepancies in currencies, so there is no need to intervene," French Finance Minister Michel Sapin told reporters after the two-day G7 gathering concluded on Saturday.

So all the central bankers are going to normalize rates and get out of the financial markets?

"Obviously Japan has to make its own judgment on the course to take. But the critical consideration has to be not to put drag on the economy," Lew said on Saturday.

While Aso has publicly warned of intervention after the yen's recent rise to 18-month highs, some economic policymakers have signaled that they are not too worried the yen will derail a fragile economic recovery.

The same geniuses who can't see bubbles or predict recessions.