Economic Policy in Japan 2010 (3)

From October 22 to 23rd , 2010, the G20 meeting of Finance Ministers and Central Bank Governors of 20 countries was held in South Korea. The purpose of this conference was to refrain from the competitive devaluation of major currencies and to reduce the excessive imbalances, maintaining current account imbalances at sustainable levels.

However competitive devaluation of currencies began with the U.S. dollar while other countries followed suit, taking cheap currency policies to defend their domestic economies.

Since the U.S. economy has worsened recently, the U.S. government wants to expand their exportation two-fold within the next 5 years, acknowledging the falling U.S. dollar.

I think the U.S. government should not take this money easing recovery policy but instead to pursue a structural reform to create much needed employment opportunities. Of course, it is difficult for the U.S. to do so; however, the U.S. has a responsibility for the world economy.

On the other hand, it is true that rapidly developing countries like China and Korea are already pursuing high technologies and are able to produce similar products cheaper than Japan.

In spite of these facts, both the gen and won have depreciated more than their economic fundamentals. As a result, both countries can easily promote their products to the U.S. and Japan, especially China which has received significant profits trading with the U.S.

That is why the G20 announced that they will move towards more market determined exchange rate systems that reflect their economic fundamentals.