Currency wars come to Moscow as G-20 spars over yen

The G-20 forum, which put together a huge financial backstop to halt a market meltdown in 2009, is back in the spotlight after a week in which the Group of Seven rich nations tried, and spectacularly failed, to speak on currencies with one voice.

The G-7 has long been the powerhouse of financial diplomacy. But tension between Washington and Tokyo has risen over new Prime Minister Shinzo Abe's bid to end two decades of deflation.

The G-7 issued a joint statement on Tuesday reaffirming “our longstanding commitment to market determined exchange rates.” Yet the show of unity was quickly undermined by off-the-record briefings critical of Japan.

Hosts Russia say the G-20, which includes leading emerging markets and accounts for 90 percent of the world economy, will back the thrust of the G-7 text when they issue their communique on Saturday.

Russia's finance “sherpa,” Deputy Finance Minister Sergei Storchak, said the drafting discussion was proving “difficult,” but the final text would not single out Japan for criticism.

“There is no competitive devaluation, there are no currency wars,” Storchak told reporters. “What's happening is market reaction to exclusively internal decision making.”

When the G-20 last met in November, its statement contained a call to “refrain from competitive devaluation of currencies” that was omitted by the G-7 this week in what Tokyo took to mean its policies had won a free pass.

“As the G-20 meeting in Moscow gets underway, the battle lines are drawn — it isn't 'G-6 against Japan' as much as it is 'G-7 against G-13,'” French bank Societe Generale wrote in a note.

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