U.S., Japan agree to tackle currency, economic impact of Ukraine war
U.S. Treasury Secretary Janet Yellen and Japanese Finance Minister Shunichi Suzuki agreed on Tuesday to work together to tackle rising prices of food and energy, as well as volatility in currency markets, exacerbated by Russia’s war in Ukraine.
They said the war had raised exchange rate volatility, which could pose adverse implications for economic and financial stability, and pledged to cooperate “as appropriate” on currency issues.
“We will continue to consult closely on exchange markets and cooperate as appropriate on currency issues, in line with our G7 and G20 commitments,” the two sides said in a joint statement after the meeting, referring to the Group of Seven and Group of 20 economies.
Later on Tuesday, Yellen acknowledged the yen’s substantial depreciation in recent weeks, but said the U.S. view remained that currency intervention was warranted only in “rare and exceptional circumstances”.
The Japanese currency, which hit a fresh 24-year low beyond 137 yen to the dollar on Monday, has given up about 16% against the greenback this year.
The two leaders also said they were united in their “strong condemnation of Russia’s unprovoked, unjustifiable, and illegal war against Ukraine”, adding they continued to increase Russia’s cost of its war by imposing economic and financial sanctions.
Russia has described the invasion of Ukraine as “a special military operation”.
The Ukraine crisis has raised the risk of a global recession by stoking a surge in cost pressures and exacerbating supply chain disruptions in a blow to demand.
Yellen and Suzuki also urged China and other non-Paris Club creditors to cooperate “constructively” in helping low-income countries facing debt distress, while also touching on issues such as climate change and global tax reforms.
China’s lack of cooperation on debt restructuring for low-income countries has been “quite frustrating” and Washington has discussed the issue with Beijing several times, Yellen told reporters after the meeting.
RUSSIAN OIL PRICE CAP
The joint statement also referred to a price cap on Russian oil proposed by the United States to keep Moscow from using higher oil prices to fund its war in Ukraine, but stopped short of laying out any agreement on a scheme.
U.S. Treasury Secretary Janet Yellen testifies during a House Ways and Means Committee hearing on President Biden’s proposed 2023 U.S. budget, on Capitol Hill in Washington, U.S., June 8, 2022.
Yellen told reporters the United States had not mentioned a specific number for the price cap, but Russian budgets had in the past factored in $40 a barrel and their marginal cost was “well below that”.
“I’m not saying that $40 is the right number,” she said. “We haven’t decided what the right number is.”
The global price of oil could surge by 40% to about $140 a barrel if a proposed price cap on Russian oil is not adopted, along with sanction exemptions that would allow shipments below that price, a senior U.S. Treasury official said earlier.
The U.S. official said the goal was to set the price at a level that covered Russia’s marginal cost of production so Moscow was incentivised to continue exporting oil, but not high enough to let it fund its war against Ukraine.
The Japanese finance minister, who had fired off a fresh warning shot against the renewed yen weakness earlier on Tuesday, said he told Yellen his government was concerned about the currency’s recent rapid weakening.
“As G7 agrees, excess volatility and disorderly moves can hurt economic and financial stability, and we are carefully watching the market with high sense of urgency,” Suzuki told reporters after the meeting.
Yellen said the two officials did not discuss intervention or related policy.
She added that the United States believed that countries such as itself, Japan and other G7 members should have market-determined exchange rates and “only in rare and exceptional circumstances is intervention warranted.
Yellen, who formerly chaired the U.S. central bank, met separately with Bank of Japan Governor Haruhiko Kuroda on Tuesday, the Treasury said.
She also met leading Japanese economists at the U.S. embassy in Tokyo to discuss monetary policy, inflation, fiscal policy and the two countries’ economic outlooks.
Yellen paid her respects to slain former Prime Minister Shinzo Abe, Japan’s longest-serving modern leader, at a private wake on Monday evening, lauding his work to increase Japan’s prosperity and advance the status of women.
On Wednesday, Yellen will travel to Indonesia to meet Suzuki and other Group of 20 finance officials at gatherings on July 15 and 16.