G7 says Japan playing by currency rules

AYLESBURY, England (AP) — Japan convinced its partners in the Group of Seven leading industrial economies Saturday that it was not manipulating its currency as part of a bold attempt to get its economy out of a near two-decade period of stagnation.

At the conclusion of a two-day meeting of leading financial representatives from the G-7 countries — the U.S., Germany, France, Italy, Japan, Canada and the U.K. — host British Treasury chief George Osborne said there was a formal acknowledgement that each member needed to secure their own countries' growth by balancing austerity measures with growth-enhancing policies. The meeting also agreed on the importance of finding measures to deal with failing banks and working collectively to stop companies and individuals from dodging their tax bills.

The global recovery from recession over the past few years has been patchy. While the U.S. economy, the world's largest, appears to be gaining traction, many European countries are in recession as they try to get a grip on their public finances through deep spending cuts and tax increases.

"The will is still there to reduce the deficits but there is certainly a change of tone," said Pierre Moscovici, France's finance minister at the conclusion of the two-day summit at a country house around 50 miles (80 kilometers) northwest of London.

Japan, the world's number 3 economy has been in focus over recent months as the new government of Prime Minister Shinzo Abe has embarked on a radical policy of aggressive monetary stimulus to restart the country's postwar boom, which effectively ground to a halt in the early 1990s.

One of the offshoots of the pumping more money into the Japanese economy has been a dramatic fall in the value of the yen. On Thursday, the dollar rose above 100 yen for the first time in over four years.

As well as potentially boosting economic growth by making its exports more competitive, the flipside of a lower yen is that it can also stoke inflation by increasing the price of imports. For a country that's seen prices fall for much of the past 15 years, that's important.

The rapid slide in the value of the yen has sparked fears of a "currency war" — where countries use their exchange rates as an economic weapon. If other countries respond to the falling yen by debasing their currencies, 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.

So far, the argument presented by Japanese officials that it has been targeting monetary stimulus and not its exchange rate has been accepted by Japan's G-7 partners.

British finance minister George Osborne, who hosted the two days of informal discussions, said the G-7 countries all agreed to make sure that "policies are oriented towards domestic objectives."

In a rare development, the G-7 didn't actually issue a communique at the conclusion of its deliberations. However, Osborne said the previous communique "was a successful statement and one that has been held to" — a clear reference to Japan.

In February, when markets were particularly roiled by developments in Japan, the G-7 said their respective fiscal and monetary policies were oriented towards meeting domestic requirements and that exchange rates were not a target of policy.

A senior U.S. Treasury official said there was a good discussion about what's going on in Japan and that Japanese officials went into some detail about how the new policy was helping to boost domestic demand.

Analysts said it's difficult for the G-7 to make any concerns over Japan public because other countries, such as the U.S. and Britain, have been accused of debasing their respective currencies over the past few years through their monetary stimulus programs.

"It's a bit like the pot calling the kettle black," said Simon Derrick, senior currency strategist at BNY Mellon.

All participants at the meeting said boosting economic growth was a priority now that financial markets appear to have calmed down, especially with regard to the debt crisis that has gripped the 17-country Eurozone.

Bad banking practices around many parts of the world were behind the financial explosion in 2008, which sent the world economy skidding towards its deepest recession since World War II. Britain's Osborne said it was important to swiftly complete work to make sure that no bank is too big to fail.

"We must put regimes in place ... to deal with failing banks and to protect taxpayers and to do so in a globally consistent manner," he said.

Mario Draghi, the president of the European Central Bank, said the bank was working out what it can do to make sure that banks lend more. Though banks have managed to reduce their debt and bolster their capital reserves and have benefited from liquidity offers from the ECB, lending remains stuck at relatively low levels — particularly to smaller and medium sized enterprises.

"There wasn't any call to do more really," Draghi said, a day after Britain's Osborne indicated there would be discussions on the role of the world's central banks in shoring up global growth.

Osborne also said it was important to tackle tax avoidance and evasion, and said some of the U.K.'s offshore dependencies are working to make sure they follow the spirit of new international standards.

"Today, we all agree on the importance of collective action to tackle tax avoidance and evasion," he said. "We are absolutely determined to make progress this year .... It is vital that both developed and developing countries collect the tax that is due to them."

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South Korea summons Japan envoy over war shrine visits, Abe remarks

SEOUL (Reuters) - South Korea summoned the Japanese ambassador in Seoul on Thursday in protest over visits by senior officials and lawmakers to a shrine seen by Japan's neighbors as a symbol of wartime aggression, the Yonhap news agency reported.

South Korea's Yonhap said the South's foreign ministry had called in Tokyo's envoy in protest over the shrine visits and comments made by Japanese Prime Minister Shinzo Abe.

China and South Korea chastised Japan after more than 160 lawmakers visited Tokyo's Yasukuni shrine this week.

That followed a symbolic offering made by Abe to the shrine and a visit by Deputy Prime Minister Taro Aso and two other ministers at the weekend.

Such visits to the shrine, a regular occurrence during religious festivals, have long angered Asian nations where the scars of Japan's past militarism still run deep.

The shrine honors Japan's war dead, as well as 14 leaders convicted as war criminals by an Allied tribunal.

Earlier this week, South Korea's foreign minister canceled a trip to Tokyo, and Beijing said this week's events showed Japanese leaders continued to deny the nation's militaristic past.

Abe, however, was unapologetic.

"It is only natural to honor the spirits of the war dead who gave their lives for the country. Our ministers will not cave in to any threats," Abe told a parliamentary panel on Wednesday.

"It is also my job to protect our pride, which rests on history and tradition."

While defending his actions, Abe also said he was open to dialogue with China and others. Tokyo was also discussing a possible trip by defense officials to Beijing to ease tensions.

Japanese media said the delegation could leave as soon as Thursday, but the defense ministry said details were still being worked out.

Tensions also heated up in a Sino-Japanese row over disputed islands, known as the Senkaku in Japan and the Diaoyu in China, after a flotilla carrying Japanese nationalists sailed near the rocky islets and China sent eight surveillance ships.

The recurring flare-ups in tensions between Japan, South Korea and China have been a source of concern for Washington, which is keen to secure cooperation from Seoul, Tokyo and Beijing in reining in reclusive North Korea.

(Reporting by Ju-min Park in SEOUL and Kaori Kaneko in TOKYO; Writing by Tomasz Janowski; Editing by Paul Tait)

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China's new diplomats signal thaw with Japan, keeping U.S. at bay

By Ben Blanchard

BEIJING (Reuters) - New Chinese leader Xi Jinping's appointment of two top diplomats last week displays a desire to repair relations with long-time rival Japan after months of disruption, while keeping the United States and its strategic pivot to Asia at bay.

Yang Jiechi, a hard-nosed former ambassador to Washington, has been named the state councilor in charge of the foreign ministry, its top post. A fluent English-speaker, he firmly believes the United States should stay out of regional Asian affairs such as the South China Sea dispute.

The new foreign minister is Wang Yi, a smooth and urbane diplomat who knows Japan well and will be in charge of repairing ties with Tokyo, damaged by a bellicose spat over a group of uninhabited islands in the East China Sea.

"China really does not want to see this kind of confrontation with Japan," said Ruan Zongze, deputy director of the China Institute of International Studies, a think-tank affiliated with the Chinese Ministry of Foreign Affairs.

"The new foreign minister has worked in Japan, which shows how much attention we are putting on this issue. We will communicate more with Japan to ameliorate the situation."

The military, often an influential voice in foreign policy, has also been making a series of conciliatory commentaries about Japan, indicating Beijing wants to climb back from the worst dip in ties between the Asian powerhouses in years.

Nevertheless, Xi will be hamstrung by the same foreign policy restrictions that beset his predecessors.

China's prosperity depends on having steady and peaceful relations with its neighbors and with Washington.

But Xi will have to prove to an increasingly nationalist domestic audience that he is defending China's legitimate rights and winning the international respect the country deserves as the world's second-largest economy.

There will be pressure on him at home to maintain a strong position on the disputes over the East China Sea islands with Japan and on the South China Sea with Southeast Asian nations. He will also have to address a strong perception in China that the United States is actively trying to contain Beijing's growing economic and military might, especially with the pivot to Asia that President Barack Obama announced in 2011.

"Rising nationalism in China is a big challenge for Chinese leaders," said Wang Dong, an international relations professor at the elite Peking University, whose academics often act as a sounding board for government policy.

"Equally, there is very much a balancing act that Chinese leaders have to take between the domestic audience, their expectations, and the foreign policy goals of ensuring a peaceful external environment for China."

FIRST TRIP

Despite the diplomatic focus on Japan and the United States, Xi has chosen to make his first foreign trip, later this week, to Russia, South Africa, Tanzania and the Republic of Congo.

Russia is a natural choice, as the two countries share many common points of view, such as over the crisis in Syria. China is also desperate to have a stable friend on its northern flank to counter growing U.S. influence in one-time good friend Myanmar on its southern borders.

Africa is strategically important for China too, driven by Chinese hunger for resources to power its economic boom and African demand for cheap Chinese products. China's trade with Africa exceeded $220 billion in 2012, up around one-third on 2011, according to Chinese statistics.

Nevertheless, Beijing has to address concerns that its state-owned companies have imported Chinese labor into Africa to run construction and other projects, while pumping out raw resources and processing them in China.

"We have told Chinese companies that they cannot just use Chinese workers," China's special envoy to Africa, Zhong Jianhua, told Reuters. "I think most Chinese firms now realize this."

But the ties between the world's number one and number two economies remain key.

Xi met Obama in Washington early last year and U.S. Treasury Secretary Jack Lew was in Beijing this week, just days after Xi was formally installed in office, to underscore the importance of the relationship.

For China, State Councillor Yang, ambassador to Washington from 2001-2005 and the outgoing foreign minister, is seen as a man who can deal with Washington while articulating Beijing's position on tricky issues like the island disputes, the yuan currency and trade spats.

China has only five state councilors and the post is senior to that of foreign minister.

Wang, the new foreign minister, is seen as a fence-mender. He has won kudos for successfully overseeing a warming of ties with long-time rival Taiwan as head of China's Taiwan Affairs Office.

Added into this mix is Cui Tiankai, a deputy foreign minister who is tipped to become the new ambassador to the United States, someone who can be just as confrontational as Yang but who is also well thought-of in Washington.

"China does not want trouble. There are too many issues to deal with at home," said Ruan at the China Institute of International Studies.

WORLD STAGE

However, there are still no foreign policy experts in the Politburo, China's elite decision-making body, signaling diplomacy will continue to take a back seat to domestic issues.

And China has show few signs of wanting to assume a bigger international role commensurate with its growing position in the world.

"In terms of comprehensive national strength, China is now number two in the world," widely-read tabloid the Global Times, published by Communist Party mouthpiece the People's Daily, said on Tuesday.

"China needs an even greater diplomatic strategy ... which must be to suit our national situation and not copy the experience of other great powers."

For instance, China imports around half of its oil from the Middle East, but it only plays a minor role in addressing crises like Syria or the on-going Israeli-Palestinian dispute.

The role of protecting the Gulf oil fields and key shipping lanes still essentially falls to the world's global policeman, the United States.

"I do not see ... any stomach for doing anything in the Middle East," said David Schneyer, director of the Program on Arab Politics at the Washington Institute for Near East Policy.

"I don't know if that's going to be sustainable or if there are going to be pressures on China, as a growing world power and economic power, to become more involved in the region. But I would think over time there will be. But there's certainly very little interest in doing so."

(Additional reporting by Benjamin Kang Lim, Sally Huang and Terril Yue Jones; Editing by Raju Gopalakrishnan)

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ASA rules Japan Tobacco ads "misleading"

LONDON (Reuters) - The Advertising Standards Authority (ASA) has ruled that adverts run by Japan Tobacco's Gallaher last year were "misleading", in an increasingly bitter battle between tobacco firms and anti-smoking campaigners over plain packaging.

Gallaher, which owns brands like Silk Cut and Hamlet and was bought in 2007 by Japan Tobacco, ran a series of British newspaper adverts in 2012 arguing against the adoption of plain cigarette packs.

The adverts were challenged by pressure group Action on Smoking and Health and charity Cancer Research UK, who said the adverts made misleading claims, a complaint that the ASA said on Tuesday it was upholding.

Australia ruled last year that cigarettes and tobacco must be sold in plain packets without branding, a move that is being watched closely by Britain and other countries.

Such a move would likely impact hardest on sales of premium brands, where companies are seeing strongest growth.

Britain passed a law in 2008 to ban the display of cigarettes at the point of sale, but held back from insisting on plain packaging.

In its adverts, Gallaher said that "the policy was rejected in 2008 because there was no credible evidence".

However, the ASA said that readers were likely to interpret that to mean that the government had decided in 2008 to abandon the proposal of plain packaging and not plan to revisit it.

The regulator said that it understood that the government was keeping the measure under review and planned to re-assess it at a later date, though.

"We therefore considered that the claims in the ads that the policy had been 'rejected' in 2008 because of a lack of credible evidence gave a misleading impression of the position and action taken at that time by the government," it said.

It said that the adverts must not reappear again in their current form.

Japan Tobacco said it was "disappointed" by the ASA's ruling.

"Whilst we disagree with the ASA's decision, we will not use the advertisements in question again," it said in a statement.

"We also disagree with those who it appears wish to close down this debate and will continue to express our concerns."

Some media reports have said Britain will introduce plain packaging this year and will announce the measure in May.

Japan Tobacco said it believed no decision has been made.

(Reporting by Rosalba O'Brien, editing by Paul Casciato)

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China likely to appoint expert on North Korea, Japan as foreign minister

BEIJING (Reuters) - China is likely to appoint an expert on Japan and North Korea as its next foreign minister, three independent sources said, in a measure of Beijing's resolve to improve difficult relationships with two of its closest neighbors.

Barring last-minute changes, Wang Yi, 59, China's ambassador to Japan from 2004 to 2007, was likely to be appointed foreign minister during the annual full session of parliament next month, the sources said.

A fluent Japanese speaker, he was China's main representative to the six-party talks on North Korea from 2007-2008, and was a counselor and later minister counselor at the Chinese Embassy in Tokyo from 1989 to 1994.

"China is sending a signal that Sino-Japanese relations will be the most important of important issues," a source with ties to the leadership told Reuters, requesting anonymity to avoid repercussions for speaking to foreign reporters.

Tensions over uninhabited islands in the East China Sea - claimed by Beijing as Diaoyu and by Tokyo as Senkaku - flared last year, raising fears of a miscalculation and an unintended military confrontation.

Wang was to replace Yang Jiechi, 62, who was tipped to be promoted to foreign policy tsar as one of five state councillors, the sources said. The post is senior to that of foreign minister.

The source with ties to the leadership said deteriorating ties with Japan could be improved.

"Wang Yi is like Zhou Enlai - a modest gentleman with a scholarly bearing," the source said, referring to China's first premier and foreign minister. "He will exercise restraint, is rational and wise."

The islands, also claimed by Taiwan, are one of several maritime territorial disputes involving China that have worsened as Washington shifts its security focus to Asia.

Wang's two immediate predecessors were former ambassadors to Washington before taking over the foreign policy portfolio.

But mending fences with Tokyo will be no easy task.

"Japan must first recognize the Diaoyus are disputed," a second source said. "If Japan insists there is no dispute, then what is there to talk about?"

Since 2008, Wang has been minister of the cabinet's Taiwan Affairs Office, which implements policy towards the self-ruled democratic island Beijing claims as its own.

During his time in that role, he has overseen steadily warming ties with Taiwan, including the signing of landmark trade and economic agreements.

From 2007 to 2008, Wang was China's point man on six-party talks involving the two Koreas, the United States, Japan and Russia aimed at curbing Pyongyang's nuclear ambitions.

North Korea conducted a third nuclear test on February 12 and is ready to go ahead with a fourth and possibly fifth test.

China is the North's only major ally and while it appears to be exasperated with the isolated state's belligerent behavior and is likely to agree with U.N. sanctions, it is not likely to cut food or fuel supplies.

"Wang Yi is familiar with the North Korean issue, but it is complicated and more difficult (to resolve) than scaling the heavens unless the United States is willing to help," the second source said.

Vice Foreign Minister Zhang Zhijun, 60, was widely expected to become minister of the Communist Party's International Department, which deals with foreign political parties, including Pyongyang's ruling Workers' Party of Korea, the sources said. Zhang was vice minister of the department from 2000 to 2009.

Another vice foreign minister, Cui Tiankai, 60, was to be named ambassador to the United States, the sources said.

(Additional reporting by Ben Blanchard; Editing by Raju Gopalakrishnan)

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