March 20, 2018 / 8:12 PM / 3 months ago

Japan gets its way at G20 on warning against recent market rout

BUENOS AIRES (Reuters) - Japan’s calls to add a warning against recent market volatility were reflected in the G20 finance leaders’ communique, its vice finance minister said in a sign of Tokyo’s concern over the risk of another yen spike that could hurt an export-reliant economy.

Japan's State Minister of Finance Minoru Kihara is seen during a news conference at the G20 Meeting of Finance Ministers in Buenos Aires, Argentina, March 20, 2018. REUTERS/Martin Acosta

In their communique issued after a meeting on Tuesday, Group of 20 finance leaders said “recent market volatility despite sound fundamentals of the global economy is a reminder of risks and vulnerabilities” of markets to sudden, shock events.

The wording, which was not included in previous communiques, took into account Japan’s view that the market rout in February, which caused a spike in the safe-haven yen, was out of line with economic fundamentals, senior Japanese officials said.

“I told the G20 we need to send a joint message on this point, and our view was taken into account in the communique,” Japan’s vice finance minister Minoru Kihara told a briefing on Tuesday after attending the G20 finance leaders’ gathering.

Japan's State Minister of Finance Minoru Kihara and Bank of Japan Governor Haruhiko Kuroda attend a news conference at the G20 Meeting of Finance Ministers in Buenos Aires, Argentina, March 20, 2018. REUTERS/Martin Acosta

“It’s not just currency moves but the recent market volatility doesn’t reflect fundamentals,” another senior finance ministry official told reporters on condition of anonymity.

The Nikkei stock average dived to multi-month lows in February and the yen rose past levels many manufacturers base their earnings forecasts on, over investors’ concern that major central banks may roll back stimulus quicker than expected.

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The yen has stayed stubbornly high despite repeated verbal warnings by Japanese policymakers, who fret a strong yen could hurt corporate profits and the export-reliant economy.

Concern of triggering a renewed yen spike may also force the Bank of Japan to lag well behind its major peers in dialing back crisis-mode monetary stimulus, some analysts say.

As the Federal Reserve proceeds toward policy normalization, the G20 communique warned of “financial vulnerabilities that could be revealed with a faster than expected” monetary tightening.

Bank of Japan Governor Haruhiko Kuroda told the same news conference that central banks would “no doubt” head for an exit from ultra-loose monetary policies if their economies were in good shape and inflation hit their targets.

The communique did not mean to imply that the Fed’s policy normalization could directly hurt global growth, but reminded central banks to be mindful of the impact their policy shifts could have on emerging markets, he said.

“There has always been concern expressed in global meetings that (policy normalization of major central banks) could have a negative effect on some emerging economies,” Kuroda said.

Reporting by Leika Kihara; Editing by Andrea Ricci and Sandra Maler

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