Divide Over Fiscal Policies at G-7

SENDAI, Japan (AP) -- Japan faces a challenge in bridging a widening divide over how to revitalize sluggish growth at a meeting Friday of finance ministers and central bank governors of the Group of Seven industrial nations.

The talks got underway with a closed door brainstorming session between the officials and eminent economists.

Japanese Finance Minister Taro Aso said the discussions would focus on fiscal and monetary policy, the international financial system, sustainable development and issues such as money laundering and tax evasion.

The talks will culminate with a statement for G-7 leaders, who are to meet in Ise, in central Japan, next week.

"We, the G-7 countries, are presently faced with many challenges that need to be addressed on the global economic front," said Bank of Japan Gov. Haruhiko Kuroda.

Over the past three years, Kuroda has sought to revive Japan's own moribund growth by pumping tens of trillions of dollars into the economy through central bank asset purchases. More recently, the Bank of Japan implemented a negative interest rate policy, hoping to spur more bank lending and corporate investment to help support faster growth.

With monetary policies yielding only middling results, Japan increasingly has favored more pro-active fiscal stimulus, joining France, Italy and Canada, which are increasingly at odds with Germany's pro-austerity stance.

Canada's Finance Ministry recently proposed an increase in spending to support families and indigenous people and finance construction of public transport and other infrastructure.

Canada's finance minister, Bill Morneau, said in a statement that he would convey the support for a "people-centered" approach at the G7 meeting.

"Reducing inequality and prompting global growth starts with strengthening the middle class, and helping those working hard to join it," Morneau said.

U.S. Treasury Secretary Jacob J. Lew met Friday with Jeroen Dijsselbloem, head of a group of finance ministers from the eurozone, and discussed Greece's efforts to regain economic equilibrium, his office said in a statement

Lew urged all involved in talks on Greece's debt to be flexible so talks could succeed.

As finance minister, Aso must answer for Japan's public debt, which at twice the size of its economy is even larger than Greece's in relative terms, though held mostly by domestic investors.

On Thursday, Aso downplayed speculation that Prime Minister Shinzo Abe, facing a parliamentary election this summer, will put off a hike in the national sales tax.

Baring a major financial crisis or other calamity, such as the devastating tsunami that washed over Japan's northeastern coast in March 2011, including parts of Sendai, the tax hike will go ahead as planned, Aso said.

But Abe and others have also said they would reconsider if the increase to 10 percent from the current 8 percent risks crippling the recovery. A severe downturn brought on by such a tax increase potentially could do more harm to revenues than good, officials say.

The financial leaders also are somewhat at odds over currency policy.

Japanese businesses, and Aso himself, have chafed at a recent rise in the value of the yen against the U.S. dollar, hinting at a possible need to intervene in the markets as exporters' profits plunge and shares sink, undermining Abe's efforts to persuade businesses to raise wages and help boost consumer demand.

The dollar has fallen to about 109 yen from a peak of about 125 yen as investors bought the Japanese currency, which traditionally is considered a "safe haven" in times of volatility and uncertainty. But the U.S. Treasury Department recently included Japan among five countries, along with China, Germany, South Korea and Taiwan, on a monitoring list designed to pressure governments to tackle large trade imbalances with the United States.

Treasury's report to Congress did not designate any nation as a currency manipulator, but said it was more closely monitoring actions of countries with which the United States is running large deficits. If talks triggered by the listing fail, Japan and the other countries could face sanctions.

Japan says the yen's weakening from about 80 yen to the dollar to its current level was the result, not the aim, of the Bank of Japan's barrage of monetary easing.

But the precipitous rise in the value of the dollar against the yen since late 2012 has fueled accusations Tokyo might be manipulating exchange rates to benefit its own exporters.

Lew and other administration officials could raise U.S. trade concerns during the talks in Sendai and other major finance meetings. But overall, officials say, the main focus is on finding ways to spur growth.

(KA)