GLOBAL ECONOMY-Japan questions S.Korea G20 leadership over FX

* Japan wants South Korea, China to play by same FX rules

* Tokyo says its own intervention is different

* Geithner sees “no risk” of currency war

* China says G20 should not focus on specific currency

* Fed says easing may be needed before long
(Adds U.S. lawmaker on China currency legislation)

By Stanley White and Linda Sieg

TOKYO, Oct 13 (BestGrowthStock) – Japan called into question South
Korea’s leadership of the Group of 20 nations forum on
Wednesday because of Seoul’s interventions to stem the won’s
rise, at the same time insisting its own currency action was
qualitatively different.

The remarks by Japan’s finance minister underscored deep
divisions over currency policies, an issue that will dominate
G20 meetings in South Korea this month and next after a weekend
International Monetary Fund meeting failed to produce any
agreement.

“As chair of the G20, South Korea’s role will be seriously
questioned,” Yoshihiko Noda told a parliamentary panel when
asked about South Korea’s currency interventions.

Record low interest rates in rich countries have pushed
global investors into emerging markets in search of higher
yields, driving up their currencies.

In response, several governments have stepped into foreign
exchange markets or tried to curb capital inflows, raising
fears of a currency “race to the bottom” that may trigger
protectionism and hobble global growth.

Japan intervened in the currency market last month for the
first time in more than six years to try to stem a rise in the
yen that threatens its fragile economic recovery.

Noda drew a distinction between that action and more
frequent intervention by South Korea and China.

“In South Korea, intervention happens regularly, and in
China, the pace of yuan reform has been slow,” Noda said.
“Our message is that we have confirmed at the Group of Seven
that emerging market countries with current account surpluses
should allow their currencies to be more flexible.”

South Korea did not immediately comment on the remarks.

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Graphic on trade weighted fx: http://r.reuters.com/qun86p

Currency tensions map: http://r.reuters.com/jec96p

PDF report on currencies: http://r.reuters.com/gez77p

For full list of related stories, click [ID:nLDE69308R]

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NO CONSENSUS

Pressure on China to allow its currency to rise more
quickly is likely to intensify. But hopes for a G20 consensus
look slim.

U.S. Treasury Secretary Timothy Geithner said he saw no
risk of a global currency war. But asked about the need for a
stronger yuan, he said: “We just want to make sure it’s
happening at a gradual but still significant rate.” For more,
see: [ID:nN12218440]

The U.S. Senate plans to follow the House of
Representatives in passing legislation aimed at pressuring
China to let the yuan rise more quickly, Senate Finance
Committee Chairman Max Baucus said in the text of a speech
given in Beijing. [ID:nN13269803]

Ewald Nowotny, a European Central Bank governing council
member, said the G20 was the best forum to discuss the uneven
global growth that is leading to the currency disputes.
[ID:nN13250117]

But he said his fear is retaliatory action by the U.S.
Congress against China if it fails to let its currency
strengthen more rapidly.

“What clearly would make us very nervous … is if some,
let’s say, unilateral steps would be taken which could spark,
let’s say, a political crisis. That is something that would be
damaging for the world economy in general,” he said.

China’s insistence that the yuan’s rise must be gradual is
a huge obstacle to the appreciation in Asian exchange rates
policymakers say is needed to reduce global imbalances.

China and other countries counter that the prospect of the
Federal Reserve printing money again will flood the world
economy with more liquidity, weaken the dollar and push
emerging currencies yet higher.

“It’ll be impossible for the G20 to reach a consensus on
currencies. Many emerging economies feel that they are being
forced to intervene because of a weak dollar,” said Etsuko
Yamashita, chief economist at Sumitomo Mitsui Banking Corp.

“China will not succumb to outside pressure.”

Minutes of the Fed’s last policy meeting showed its
policymakers thought easier policy may be needed “before long”
to bolster a struggling recovery. [ID:nN12188145]

China’s chief G20 currency negotiator, Cui Tiankai, said
Beijing was trying to avoid a currency stand-off but that no
specific currency should be on the G20 agenda.

“We are doing our best to avoid that,” Cui, a foreign
vice-minister, said on the sidelines of a conference in Seoul.
“But it requires efforts of all the G20 members, not China
alone.”

The major world currency not being talked down is the euro,
which rose again on Wednesday, as the ECB ponders a reversal of
ultra-loose policy while the Fed is poised to ease further and
Japan has already cut rates to zero.

“In the G4 space, the ECB is the only central bank that is
talking of an exit policy and that is helping the euro,” said
Ankita Dudani, G10 currency strategist at RBS.

Analysts said Tokyo’s criticism of Seoul stemmed from its
worries about competitiveness. The yen is up about 13 percent
against the dollar this year, the won only about 4 percent.

“Japan feels it has been under pressure not to intervene
because of G7 rules but people outside (of G7) seem to be
playing by different rules,” said Robert Feldman, chief
economist at Morgan Stanley MUFG Securities in Tokyo.

Japanese Prime Minister Naoto Kan urged Seoul and Beijing
to act responsibly but acknowledged Tokyo’s delicate position.

“I want South Korea and China to take responsible actions
within common rules, though how to say this is difficult
because Japan has also intervened,” he told lawmakers.

Japan sold 2.1 trillion yen ($26 billion) last month to
curb the yen’s strength versus the dollar. South Korea has
intervened to the tune of about $13 billion since late
September, but analysts said it has acted more aggressively in
relative terms.
(Additional reporting by Yoko Kubota in Tokyo, Cheon Jong-woo
in Seoul and David Lawder in Washington; writing by Mike
Peacock; editing by Stephen Nisbet and Dan Grebler)

GLOBAL ECONOMY-Japan questions S.Korea G20 leadership over FX