* Discomfort grows with Japan's monetary easing push
* Japan says easing aimed at deflation, not FX manipulation
* Yen hits 2-1/2 year low against the dollar
* Many countries favour weaker currency
* G20 an important test of Japan's financial diplomacy
(Adds details on BOJ minutes, G20 meeting)
By Stanley White and Tetsushi Kajimoto
TOKYO, Jan 25 Japan brushed aside criticism that
aggressive easing by the Bank of Japan could trigger competitive
currency devaluations, saying the central bank is trying to end
nearly 20 years of deflation, not manipulate the yen.
Japanese Prime Minister Shinzo Abe's calls for aggressive
action by the Bank of Japan (BOJ), which has prompted a slide in
the yen, has raised alarm in Europe it could contribute to a
"currency war" as other central banks adopt similar policies.
Japan may have to defend its actions at a Group of 20
meeting of financial leaders on Feb 15-16 to stem the criticism
of its grand plan to revive the country's economic fortunes.
"Monetary easing is aimed at pulling Japan out of deflation
quickly," Japanese Finance Minister Taro Aso told reporters on
Friday. "It is not accurate at all to criticise (us) for
The BOJ this week agreed to double its inflation target to 2
percent and made an open-ended commitment to buying assets from
2014, measures intended to lift the economy out of its fourth
recession since 2000 and years of deflation.
"The BOJ is pursuing powerful monetary easing without
interruption," Governor Masaaki Shirakawa told a news briefing
on Friday. "Japan may be facing an opportunity now to emerge
Still, data underlined the task ahead. Japan's consumer
price index fell 0.1 percent in December from a year earlier,
and even when excluding volatile food and energy, it dropped 0.2
The yen skidded to a 2 1/2 year low of 90.695 against
the dollar on Friday after the consumer price data, which
reinforced expectations for more monetary easing. The currency
has slumped 11 percent against the dollar since early November
as Abe stormed to an election victory with bold promises to end
decades of stop-start growth.
After the BOJ's overhaul of its policy this week, Shirakawa
offered a note of caution, saying it was important that the
central bank remain flexible in guiding policy in the future.
"Long-term interest rates will spike and erode the effect of
monetary easing ... if people perceive the BOJ as having shifted
to a policy of recklessly buying government bonds, focusing
narrow-mindedly on achieving 2 percent inflation," he said.
Minutes of the BOJ's December meeting, released on Friday,
provided a hint of the possible next policy step.
They showed that a BOJ board member proposed cutting already
rock-bottom interest rates on some market operations and
scrapping the 0.1 percent interest the BOJ pays on excess
reserves held at the central bank. The idea was voted down 8-1.
Since the global financial crisis five years ago, central
banks in the United States and Britain have also engaged in
aggressive monetary easing, which can help support economic
growth by lowering interest rates but also tends to weaken the
German Chancellor Angela Merkel waded into the currency
debate on Thursday, singling out Japan as a source of concern
following the BOJ's moves.
"I don't want to say that I look towards Japan completely
without concern at the moment," she said at the World Economic
Forum in Davos. "It is known that in Germany we are of the
opinion that central banks are not there to clean up political
bad decisions and a lack of competitiveness."
The head of Germany's Bundesbank joined other central
bankers this week in warning about the risk of competitive
devaluations - countries encouraging their currencies to weaken
in order to boost the attractiveness of home-grown products.
The BOJ's monetary easing would be a topic of discussion at
forums like the G20, South Korean Finance Minister Bahk Jae-wan
said this week.
South Korea is feeling the impact of its own rising currency
and the weak yen as it competes with Japan in exports markets,
such as electronics and autos. Hyundai Motor Co said
the currency factors would impact its competitiveness when it
reported a surprise drop in quarterly profits on Thursday.
More than 80 percent of Japanese firms are in favour of
Abe's aggressive fiscal policy and calls for a weaker yen, which
is sometimes referred to as "Abenomics," a Reuters Corporate
Respondents were also overwhelmingly in favour of aggressive
monetary easing, with 79 percent of 400 companies surveyed
saying a 2 percent inflation target would be effective.
Last year the yen flirted with record highs versus the
dollar, which was a big concern for Tokyo given the economy's
heavy reliance on exports.
"Considering the dollar was around 110 yen when the first
G20 meeting was held after the Lehman Brothers crisis, the
excessive yen strength is being corrected," Aso said, referring
to the global financial crisis.
(Additional reporting by Kaori Kaneko and Leika Kihara; Editing
by Neil Fullick)