LONDON — Financial leaders from the world's top seven economies are gathering in the UK this weekend to discuss how to shore up the global recovery just as the stimulus policy of one its members, Japan, has caused its currency to extend its slide against the dollar. While the role of central banks in supporting the global economy is set to be a key point of discussion among officials attending the Group of Seven meeting of finance ministers and central bankers, most eyes will be focused on the yen and the uber-aggressive monetary policy being pursued by the Bank of Japan. The dollar breached the 100 yen mark late Thursday — for the first time in a little over four years. Over the past few months, the yen has dropped sharply as the new government in Japan tries to bring an end to the country's two-decade stagnation, primarily by flooding the economy with money. The country's central bank has been pumping money in the hope of stoking inflation — the country has seen prices fall for much of the last 20 years. As a consequence, the yen has been sold heavily. So far there's been a certain amount of support for Japan's economic gamble — even though the yen's decline makes exports of other countries more expensive. That's led many in the markets to conclude that the Japanese monetary authorities are actually targeting the exchange rate, a charge officials have denied. Nevertheless the talk of a currency war — whereby countries use their exchange rates as an economic weapon — has not died down. If other countries respond to the falling yen by debasing their currencies through more monetary easing, Japan will be back at square one and the world economy could suffer. Sharp fluctuations in the value of currencies can hurt business confidence and investment. Ministers meeting this weekend will be keen to avoid any factor that could spark a currency war. In an interview with CNBC, US Treasury Secretary Jacob Lew said he was monitoring developments and that Japan had to play by the rules it has signed up to. However, as long as Japan doesn't directly target its exchange rate and stays "within the bounds" of international agreements, then Lew said the country has every right to deal with its underlying and long-standing economic problems. — AP
