The Group of Seven (G-7) finance ministers and central bank governors failed to show unity during their latest meeting.
With regard to the world economy, the G-7 ministers and central bank chiefs only agreed to implement necessary policy measures that suit each country's situation in a well-balanced manner. Regarding exchange rates and fiscal policies, the conference rather highlighted the differences between each country's positions.
The government of Prime Minister Shinzo Abe apparently envisions a scenario of the G-7 leaders agreeing to rectify the yen's appreciation accelerating since the beginning of this year and to take concerted action to use public funds to implement economic stimulus measures.
However, Japan and the United States are particularly in conflict over exchange rates. Finance Minister Taro Aso has described the yen's surge by 15 yen against the U.S. dollar at one point as "excessive" and said Japan was "ready to intervene" in foreign exchange markets, while Washington emphasized that foreign exchange markets "remain orderly." The United States warned Japan against driving down the value of the yen during bilateral finance ministerial talks held on the sidelines of the conference.
The G-7 countries have agreed not to compete in devaluation of their respective currencies in efforts to create a favorable environment for their own exports. However, these countries are divided over the interpretation of this accord.
Meanwhile, Germany, whose federal budget is in the black and has the least level of debt of all G-7 members, did not agree to the use of taxpayers' money to implement economic stimulus measures on the grounds that the effects of such a move would not last long. Germany has taken the position that a surplus in state funds should rather be used to accept immigrants and refugees and prepare for the aging of its population in the future.
More than three years have passed since the government of Prime Minister Shinzo Abe launched the "Abenomics" economic policy mix comprised of the so-called "three arrows" of a drastic monetary easing, increased public spending to stimulate the economy and the implementation of a growth strategy through structural reform. Despite the three key policies, emphasis is placed on the Bank of Japan-led monetary easing while the growth strategy has failed to produce tangible results. The Abenomics' reliance on credit easing is approaching its limit. The recent surge in the value of the yen has cast a shadow over performances of export-oriented companies that had pushed up overall share prices.
Under these circumstances, the Abe government is apparently aiming to prioritize use of public funds to stimulate the economy while warning against the yen's rapid rise. Questions remain, however, over how the other G-7 countries are viewing the fact that Japan, whose state debts are remarkably high among the G-7 economies, is attempting to propose that member countries generate demand through increased public spending.
What was discussed at the conference of the G-7 finance ministers and central bank governors will be dealt with by the G-7 leaders at their upcoming summit. The leaders should not be preoccupied with discussing near-term stimulus measures.
Rather, the G-7 should address the widening income gap which has emerged as a serious global issue and other matters that are closely related to political stability. The G-7 leaders should not waste precious time by exchanging views on whether current exchange rates are appropriate.