By PAN PYLASAssociated Press
LONDON (AP) - The role of central banks in shoring up the global economic recovery is set to be a key point of discussion among top financial officials from the world's seven leading economies when they gather in the UK this weekend.
In a statement Friday ahead of the Group of Seven's two-day meeting at a country house around 50 miles (80 kilometers) northwest of London, British finance minister George Osborne said the main task officials face over the coming two days is looking at how to "nurture" the recovery.
"The G-7 is an opportunity to consider what more monetary activism can do to support the recovery, while ensuring medium-term inflation expectations remained anchored," said Osborne, who will be hosting the event alongside the Bank of England's governor Mervyn King.
Osborne suggested that this "activism" may involve "targeted interventions" to support lending in weak parts of the economy. The U.K. treasury chief noted that the European Central Bank had already started consultations on how best to boost lending to small and medium-sized enterprises - the key engines of economic growth and employment.
Since the financial crisis erupted five years ago, central banks have played an increasingly active role in trying to help the global economy recover from what is widely considered to be its biggest shock since World War II.
Interest rates have been slashed - to near zero percent in some cases - and new money-creation policies have been introduced, notably from the U.S. Federal Reserve and the Bank of England.
Governments had also attempted to help support the global recovery in the immediate aftermath of the crisis by increasing spending. But with debt levels around the world, not least in Europe, having risen to generational highs, that method of support has been scaled down and monetary policy has had to take on a bigger role.
Earlier this year, the Bank of Japan escalated its attempts to get the Japanese economy out of its two-decade period of stagnation. By doubling its stimulus program, pressure has been piled on to the yen. The more there is of a currency in circulation, the more its value is affected - as witnessed by the performance of the dollar over much of the past five years.
The value of the yen will form the backdrop to the G-7 discussions that are scheduled to conclude Saturday. On Friday, the dollar breached the 100 yen for the first time in a little over four years. By late morning London time, it was trading 0.7 percent higher at 101.33 yen.
So far there's been a certain amount of benign support for Japan's economic gamble, even though the yen's decline potentially makes exports of other countries more expensive.
For the countries that use the euro, many of which are in recession, less competitive exports may not be too appetizing. Currency watchers will be interested to see if the eurozone contingent at the G-7 will make some noises of complaint - or at the least concern. As well as the three euro countries of Germany, France and Italy, the G-7 consists of Japan, Britain, the U.S. and Canada.
Few in the markets expect much change in the G-7's line from its last statement in February.
"Any remarks are set to remain along the lines of the well-worn mantra that markets should set exchange rates," said Jane Foley, senior currency strategist at Rabobank International.
This is not the first time the yen's weakness has been a cause for debate among the G-7. Back in February, as well as reaffirming their desire for market-determined exchange rates, the G-7 said their "fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates."
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