Fails in Fiscal Mobilization

The financial ministers and governors of central banks of seven developed nations agreed on taking fiscal measures for economic growth based on the needs of each country. The chair country, Japan, failed in achieving concerted announcement for fiscal mobilization, which had been the most important goal for Japanese economy. Also appeared was opposition over currency rate between Japan and United States. International economic policy community was not controllable for the chair.

Group 7 Financial Ministers and Governors of Central Bank Meeting in Sendai concluded that member countries would mobilize three policies, fiscal mobilization, monetary policy and structural reform. However, decision for fiscal mobilization was left to each government, considering firm opposition from Germany. Suffering from consecutive spending on refugee policy, German government cannot afford to spend budget for the purpose of economic growth. “The most important is structural reform,” told German Financial Minister, Wolfgang Schäuble, after the meeting.

Japan wanted to justify its own economic policy based on positive expense of budget, which consists of one of the three arrows of Abenomics. It expected Germany to be persuaded by other supporters for fiscal mobilization, such as United States or France. But, United Kingdom sided with European economic leader. It is unlikely that Japan can draw compromise from German Chancellor Angela Merkel and achieve an agreement on fiscal mobilization in the Summit Meeting later this month.

Japan also failed in agreeing with U.S. on the recognition of excessively high value of Japanese yen. “We saw unilateral and biased moves. It is necessary to stabilize foreign exchange,” said Japanese Minister of Finance, Taro Aso, to U.S. Secretary of Treasury, Jacob Lew, in the bilateral meeting before the G7 meeting. “It’s pretty high bar at disorderly conditions,” told Lew. While G7 agreed on avoiding competitive currency devaluation, bilateral difference still remains.

United States added Japan, as well as China, on its watching list for foreign exchange practices in April. Against Aso who emphasized his readiness for intervention to foreign exchange, Lew raised the possibility of chain reaction of other nations, when Japan would move to devaluation for its competitive exports. It is obvious that U.S. is skeptical on Abenomics focusing on exporters.

One thing the parties agreed on was to tackle the tax haven scandal, which some leaders in G7 was involved in. But, it is unclear whether the group can build up functional framework. Decline of G7 power can be seen in this lack of actual agreement.