Japan Brief/FPCJ, No. 0950
September 9, 2009


G20 Finance Ministers Agree to Keep Stimulus Policies in Place

The Group of 20 finance ministers and central bank governors, meeting in London on September 4-5, agreed that the world economy still needed to keep continuous stimulus policies implemented by governments in place as the outlook for sustainable recovery led by private-sector demand remained uncertain. Officials from 8 industrialized and 11 emerging economies plus the European Union were meeting just one year after the outbreak of the financial crisis of 2008 following the collapse of Lehman Brothers in a precursor of a G20 summit scheduled for September 24 in Pittsburgh. Major papers reported what they discussed as follows.

In a joint statement the G20 finance ministers and central bank governors acknowledged that the “decisive and concerted policy action has helped to arrest the decline and boost global demand” and that “financial markets are stabilising and the global economy is improving.” But in reference to the continued weakness of growth and job prospects, they said they “will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies.” Therefore, discussion of the so-called exit strategy from such policies was treated as premature.

In an attempt to prevent another bubble-sparked financial crisis, they also agreed on the need to strengthen the financial system through tighter oversight and surveillance of banking institutions, although they remained divided on specific steps to be taken to implement the measures. One key item on the agenda was the limitation on bonuses and other compensation paid to bankers; another was stricter capital requirements to strengthen financial institutions against a possible future crisis.

For Japan, the meeting took place at an awkward time as the country was in transition to a new government, which will be created on September 16 following the recent general election. As a consequence, Deputy Finance Minister Wataru Takeshita substituted for the finance minister and went to London together with Bank of Japan Governor Masaaki Shirakawa. While specific policies remain uncertain until the new government is installed, it was largely believed that Japan would go along with the G20 agreement on the continuation of the concerted stimulus by major countries. “I have told the G20 countries that it is Japan’s responsibility to keep its economy firmly back on the recovery track at a time when deteriorating unemployment is a major concern,” Deputy Minister Takeshita said at a press conference in London.

As reported by the domestic media (The Nikkei on September 6, for example), Japan was cautious about the tighter rules on banks’ capital requirements proposed particularly strongly by the United States, because that could turn out to be a burden on the operation of Japanese banks, even though they are in a healthier shape compared with their American and European counterparts. According to Deputy Minister Takeshita, Japan argued at the G20 meeting, “Although strengthened capital requirements are necessary for a stronger financial system and lending activities, they should vary in accordance with the risks involved in each financial institution’s diverse business.” Japan is expected to reiterate its argument at the G20 summit in Pittsburgh.

Media Commentaries

The Asahi Shimbun in its September 8 editorial called on the next prime minister, Yukio Hatoyama, to “express his commitment to supporting policy cooperation among the G20 nations and make a convincing explanation about how his party’s election promises will stoke Japan’s economic growth by expanding domestic demand” at the forthcoming Pittsburgh summit.

The Mainichi Shimbun editorial (September 7), on the other hand, criticized the G20’s focus on the imposition of a limitation on compensation for bankers, calling it “an argument which is unable to see the wood for the trees.” It argued, “The heart of the issue was that financial institutions were able to continuously earn colossal profits that easily offset the horrendous compensation given to traders and that the source of their profits resided in a money game quite unrelated to the activities that support the major players in the economy, such as general corporations and consumers.” The newspaper also warned against a delay in “exit-strategy,” saying, “If the timing is missed to move out of the emergency regime, which is all but unprecedented, what is in store is just another tragedy.”

The Nikkei in its September 7 editorial noted that “It was appropriate that the G20 confirmed their solidarity in supporting the economy while remaining alert” and called on the incoming government to “fully appreciate the importance of international coordination and smoothly take over economic policy from the incumbent government.” With regard to the proposed strengthening of capital requirements of banks, The Nikkei argued, “For Japanese banks, the level of whose capital is relatively low, the burden could be heavy and cause a tumultuous situation like lending restraint.” It added, “We call on the government to get more positively and strategically involved in the writing of new standards.”

While admitting that the G20’s agreement on the continuation of stimulus was “appropriate,” the Sankei Shimbun made a particular issue of the proposed strengthening of banks’ capital requirements. In its September 7 editorial titled “We regret regulations that constrain Japanese banks,” the newspaper argued, “The new rule proposed by the United States and European countries calls for the percentage of common stock in a bank’s total assets to be higher than 4%. Since Japanese banks’ holdings of preferred stocks, which promise higher dividends in place of voting rights, are higher than those of American and European banks, the proposed rule, if accepted unconditionally, would put them in an extremely disadvantageous position.”

(Copyright 2009 Foreign Press Center, Japan)

*Japan Brief is an original production of the Foreign Press Center, Japan, and does not represent the views of the Government of Japan or of any other body.


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