Meeting at the summit in Shima, G7 leaders emphasised concerns that a Brexit would have a negative impact on global economies, a statement that may add authoritative weight that will tip the scales further in the direction to stay in the EU. The G7 has also affirmed its commitment to market-based exchange rates, avoiding any “competitive devaluation” of their currencies. The G7 leaders have also renewed their previous commitments to maintaining stability in the foreign exchange market.
They warned against wild exchange rate movements that create market volatility. Japan’s Prime Minister was discouraged from blocking the increasing yen value by leaders who prefer not to interfere in the market or increase public spending in efforts to increase growth.
The conclusion of the G7 summit afforded Prime Minister Shinzo Abe an opportunity to unveil his most recent move to boost Japan’s economy: to delay an increase in the sales tax that was scheduled to start next April. The increase in growth of 1.7% in the first quarter of 2016 would likely have been halted by a tax hike. As the 2014 tax hike resulted in recession, Prime Minister Abe, as predicted, delayed the impending tax hike.
Japanese policymakers are struggling to pull the world’s third-largest economy out of what has been termed “the Japanese Disease”: a cycle of 20 years of economic stagnation after years of highly prosperous boom. The Japanese markets are watching the Group of Seven summit and awaiting a scheduled speech by U.S. Federal Reserve Chair Janet Yellen with anticipation after the yen saw gains against the dollar.
The dollar-yen trading in Tokyo held at USD around ¥110 in Tokyo at the start of the summit. Prime minister Abe would prefer not to take a hands-off approach and would rather block the rising yen, which is having a negative effect on the nation’s exports, especially automobiles. Japanese companies like Toyota are seeing profits slashed at a time when Japan’s biggest trading partner, China is reducing its imports, so these industries would prefer Prime Minister Abe not had compromised with the G7 leaders who urged less market interference.
Global Economy the Priority for G7
Although other topics were discussed, the global economy is traditionally the priority of the meeting. The G7 was officially established in 1985 to facilitate economic cooperation among the world’s largest industrial nations. The leaders of Canada, France, Germany, Italy, Japan, the UK and the US have differing views on how to address the global economic slowdown, but they pledged not to grow their own economies with “beggar thy neighbour measures” that threaten one another global competitiveness. The G7 leaders have promoted their individual monetary, fiscal and structural policies to spur growth in their own economies while uniting with the aim to share global economic challenges.
Currency Regulation Laws
After two years of discussion, Japan’s national legislature approved a bill on Wednesday to regulate domestic digital currency exchanges. Digital currency exchange operators will now be required to register with the Financial Services Agency (FSA), the government agency that oversees finance activities.
The measure was passed as part of a larger update to national banking law that sought to boost the domestic FinTech industry. The new legislatures for digital currencies were fueled out of a desire for consumer protection and to prevent payment applications of the technology from assisting in terrorist financing.
Japan seeks to become a leader in blockchain technologies. In May, local startup bitFlyer received ¥3bn or about $27m and TechBureau raised $6.5m in significant venture funding rounds, investment Japanese business needs more of to fuel its economic recovery. Measures against terrorist financing, including increased monitoring of virtual currencies and other new financial settlement methods, will likely be high on the agenda at the two-day summit of the Group of Seven.
EU and Asia Trade Deals
The EU and Japan reached agreement on what had been a key objective for Prime Minister David Cameron, a trade deal that could be worth £5bn a year to the UK economy. Should the continued negotiations see the deal conclude as projected, the agreement might be worth an increased £200 a year to British households in increased exports to Japan. The British Prime Minister took the agreement as an opportunity to underline his own political agenda: staying in the EU trade bloc, saying: “Not only will UK households lose out to the tune of 4,300 GBP a year if we vote to leave, but we will be turning our backs on global trade deals which underpin our security and prosperity.” The leaders also backed Cameron in a statement against Brexit, for the negative implications they anticipated for the global economy.