LONDON – Japanese shares jumped after finance ministers of the G20 group of nations avoided singling out Japan for criticism for its aggressive monetary policy.
Japan is aiming to beat deflation by printing money. .
The yen has dipped nearly 15% against the US dollar since November amid Japan’s efforts to stoke inflation.
There were concerns that a criticism from G20 may prompt Japan to alter its aggressive stance. The fears were that it would result in the yen rising again and hurt Japan’s plans to spur growth.
Japan’s Nikkei stock market index surged more than 2 per cent on Monday and the yen weakened further in Asian foreign exchange markets following tacit support from the Group of Twenty (G20) nations for Tokyo’s monetary policy.
In a statement Sunday, the G20 pledged to refrain from competitive currency devaluation and said they wouldn’t use exchange rates for gaining a competitive advantage.
The G20 decided not to single out Japan for criticism although Japan’s national currency has fallen 17 per cent against the US dollar and 25 per cent against the euro, leading to accusations that Tokyo had manipulated the yen to gain a trade advantage.
Japan’s newly-elected Prime Minister Shinzo Abe reiterated Monday that his policy was aimed at beating years of deflation, and not at manipulating foreign exchange markets.
However, Abe also warned the country’s central bank, the Bank of Japan (BoJ), that he would press for a revision of Japan’s central bank law if the BoJ failed to commit to the aim of aggressive monetary easing to foster growth.
Bank of Japan Governor Masaaki Shirakawa, who disagreed with Abe on this policy, is to resign from his post next month, several weeks ahead of the end of his term in office.
Meanwhile, the Japanese currency continued to weaken. It fell 0.6% to 94.12 yen against the US dollar.
It also dipped 0.5% to 125.50 yen against the euro in early Asian trade.
The country’s economic policies have seen the Bank of Japan double its inflation target to 2% in an attempt to spur domestic consumption.
The central bank has also expanded a key stimulus measure aimed at keeping long term interest rates low.
A weak yen bodes well for the Japanese exporters and its economy on various fronts.
To begin with, it makes their goods more affordable to foreign buyers. It also helps boost the exporters’ profits when they repatriate their foreign earnings back home.
And as firms see their profits rise, they are likely to have a bigger cash pile to invest in research and development or expansion of their facilities.
Investment in research helps the firms become more competitive as they develop new products. Meanwhile, increased capital investment helps boost Japan’s overall economic growth.