ESSEN, Germany (AFX) - Following is an at-a-glance guide to the weekend meeting of G7 finance ministers and central bank governors
YEN, JAPANESE ECONOMY
-G7 finance ministers and central bank governors made no reference to the weakness of the yen in the communique issued at the end of their meeting here.
-Some euro zone ministers had expressed concern about the yen in the run-up to the meeting, but ministers agreed that it was inappropriate to single out any particular member currency for criticism in the communique.
-The G7 said the Japanese economic recovery is 'on track and is expected to continue' and urged financial markets to incorporate this in their assessments of risks.
-And Japanese Finance Minister Koji Omi and Bank of Japan governor Toshihiko Fukui both told the meeting that the recovery should be reflected in the yen's exchange rate.
-'Exchange rates should reflect economic fundamentals and the Japanese economy is recovering at a steady pace,' said Omi.
-'They told us...that the Japanese economy is on a good path and that fundamental data are improving and that, from this point of view, they agree to our view that this should be reflected in exchange rates,' German Finance Minister Peer Steinbrueck said.
-'Today our Japanese colleagues were telling us that the economic recovery is on a good path and they did express the feeling that the exchange rate should reflect this improvement,' euro group president Jean-Claude Juncker said.
-US Treasury Secretary Henry Paulson also said that Omi provided the G7 with a 'favourable' report on the Japanese economy, saying that Japan is 'on the path to sustainable growth'.
-European Central Bank president Jean-Claude Trichet warned markets about the risks of one-way bets in currency markets, particularly in carry trades which have been one of the main factors depressing the yen in recent weeks.
-'We want the markets to be aware of the risks in one-way bets, particularly on the foreign exchange markets,' he said. He said his comments related particularly to carry trades, in which investors borrow in low-yielding currencies like the yen to buy higher-yielding assets.
-Omi echoed Trichet's comments.
-'I think that the markets, including currency markets, it's not desirable for it to move in one direction,' said Omi.
-IMF managing director Rodrigo Rato also warned of potential financial instabilities from the extreme positions taken out by certain investors in the currency markets.
-Otherwise, the G7 stuck to its standard language on currencies.
-'We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth,' it said in the communique. 'We continue to monitor exchange markets closely and cooperate as appropriate.'
BANK OF JAPAN MONETARY POLICY
-Bank of Japan governor Toshihiko Fukui said the central bank will have a serious discussion about the possibility of raising interest rates at its next monetary policy meeting on Feb 21.
-At its last meeting on Jan 18, the Bank of Japan policy board left its main interest rate unchanged at 0.25 pct, a decision which contributed to the recent bout of yen weakness.
-'While we had serious discussions at our last meeting, we will have a more serious debate this time (on Feb 21),' he said, according to Kyodo news agency.
CHINESE YUAN
-G7 finance ministers and central bankers reiterated their call for more flexibility in the exchange rate regime of the Chinese yuan.
-'In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur,' they said.
-The wording of the statement shifted slightly from that used in the previous G7 communique in September. It previously referred to 'large current account surpluses' rather than 'large and growing' surpluses. And it previously called for 'greater exchange rate flexibility' rather than a move in effective exchange rates.
-But Trichet said there was no major significance in the change of wording.
-People's Bank of China governor Zhou Xiaochuan reiterated that he is in favour of making the yuan's exchange rate regime more flexible.
-But Paulson said the world would not wait forever for China to make the yuan more flexible although the country has 'come a long way'.
-He said one of the biggest priorities of his remaining two years is to get China to revalue its currency much faster.
-Paulson laid out a list of financial measures China should introduce, including the removal of equity caps on foreign financial institutions. China, he said, cannot get where it needs to without lifting the cap.
GLOBAL ECONOMIC GROWTH
-The G7 said global growth is now more balanced and risks to the growth outlook have declined.
-'Global growth is more balanced. In our economies, performance remains favourable,' it said.
-'Amid lower energy prices and moderating inflationary pressures, risks have abated, but we will remain vigilant,' it said.
-And it expressed confidence that markets would take account of the more balanced growth situation.
-'We are confident that the implications of these developments will be recognised by market participants and will be incorporated in their assessments of risks,' they said.
CHINA ECONOMY
-PBoC governor Zhou Xiaochuan said the central bank is watching inflation data very closely to see if the recent acceleration in inflation is due to seasonal factors or real inflationary pressures.
-Chinese CPI inflation accelerated to 2.8 pct in December from 1.9 pct in November.
-Asked whether the central bank might raise interest rates in response to the acceleration in inflation, Zhou said: 'We see that CPI is going up a little bit, but it's still not very significant. There might be some seasonal reasons.'
-'We are going to follow the specific data development very closely and to see whether inflation is really going up or only a seasonal fluctuation,' he told journalists on the sidelines of the G7 meeting.
-He also said that China's GDP growth is unlikely to be more than 8.0 pct this year. The Chinese economy grew 10.7 pct in 2006.
-The G7 said it welcomed China's commitment to rebalance growth.
US ECONOMY
-The G7 said the US economy is experiencing solid activity while adjusting to a more sustainable growth path.
-Paulson said he is more confident that the economy is moving towards sustainable growth.
-Bundesbank president Axel Weber said discussions with US delegates showed that the soft landing scenario for the US economy has so far been confirmed by economic data, adding there are indications of a 'bottoming out' in the US housing market.
EURO ZONE GROWTH
-The G7 said the euro zone is experiencing an increasingly broad-based upswing.
-Weber said the underlying growth trend in Germany remains intact and that the outlook for euro zone growth is still positive.
-'The cyclical dynamism in the fourth quarter in both Germany and the euro zone should not have decelerated,' he added.
TRADE
-The G7 said it fully supports the relaunch of the Doha round of world trade talks.
-'We remain committed to resisting protectionist sentiment and fully support the relaunch of the Doha trade negotiations,' ministers and central bankers said.
-They said that all participants 'have the responsibility' to ensure a successful outcome of the Doha round as it will enhance global growth and contribute to poverty reduction.
-The WTO talks were suspended last July, but trade ministers at the recent World Economic Forum in Davos agreed that negotiations should resume.
-Steinbrueck said he is optimistic that the trade talks can resume in late February or early March.
HEDGE FUNDS
-Finance ministers and central bank governors said they need to be 'vigilant' over hedge funds.
-'Given the strong growth of the hedge fund industry and the instruments they trade, we need to be vigilant,' they said.
-They said hedge funds have contributed significantly to the efficiency of the financial system.
-But they added: 'The assessment of potential systemic and operational risks associated with these activities has become more complex and challenging.'
-They said they will exchange views with the private sector and ask the Financial Stability Forum to update its 2000 Report on Highly Leveraged Institutions in time for the May meeting of G8 finance ministers.
-Steinbrueck said G7 deputy finance ministers will hold talks with the management of some hedge funds, which will be encouraged to develop and implement 'best practices'.
-Trichet said he would like to see the hedge fund industry adopt a code of conduct to ensure that risks to financial stability from its rapid growth are minimised.
-This would involve 'self assessment by the industry in a number of domains including risk control, information given to investors, information given to the prime brokers', he said.
'There is no element of a warning to the industry. It is much more a reflection of what would be the best way to proceed, taking into account past experience -- the lessons we have learned from the Asian crisis,' he added.
EMERGING ECONOMIES' BOND MARKETS
-Ministers said that emerging economies' bond markets should be developed to reduce their vulnerability to external shocks and financial crises and promote growth.
-The Bundesbank is holding a conference in Frankfurt on May 9-10 on market experience of emerging economies' bond markets. The G7 said this will help to identify concrete recommendations and sustain the momentum of reform.
G7 ENLARGEMENT
-Steinbrueck said he is in favour of enlarging the G7 bloc to include emerging market countries such as Russia.
-'It makes no sense for Russia not to be a full member,' Steinbrueck said.
-'We're in a process of expansion of the G7, which the way I see it will eventually result in the full membership' of Russia, he added.
-He said China, India, South Africa, Brazil and Australia are among countries that should also be able to join the bloc.
-Steinbrueck said there is no 'formalised process' yet to admit any new countries to the G7 group, but added he believes that 'in two, three, four years, we'll no longer have the G7-G8, but a G10 or a G14.'
IMF REFORM
-Steinbrueck said there is some hope for reaching agreement on the reform of the International Monetary Fund following new proposals from Canadian delegates at the G7 meeting of finance minister and central bank chiefs.
-There are still widely diverging views among the G7 nations about how to tackle IMF reform, Steinbrueck said.
-But he said Canadian officials had brought 'some glimpse of hope' to the debate when they proposed to discuss a 'package' of reforms.
-Under the proposal, the IMF countries would agree to a bundle of reforms that would address not only the fiercely debated quotas but also other issues, Steinbrueck said.
-In its communique, the G7 reaffirmed the 'strong belief' that fundamental reform is necessary for the IMF to maintain its credibility and effectiveness in the changing global economy.
-'We remain committed to making IMF quota shares more aligned with members' relative weight and role in the world economy, and to enhance the participation and voice of low-income countries,' it said.
ENERGY/CLIMATE CHANGE
-Steinbrueck said the G7 was not able to agree a common stance on climate change and energy issues at their weekend meeting.
-'We did not reach a clear conclusion,' Steinbrueck said.
-He said more preparatory work needs to be done on this subject before it will be addressed again by the G8 summit in June.
-In their communique, the G7 said it considers energy efficiency and the promotion of energy diversification -- notably through renewable energies -- to become an 'increasingly important issue for our economies as well as emerging market economies'.
COUNTERFEITING
-G7 ministers also said they will support enhanced cooperation to enforce intellectual property rights and combat counterfeiting.
-French Finance Minister Thierry Breton had proposed that the G7 should set up an international organisation to battle against counterfeiting, along similar lines to the Financial Action Task Force on moneylaundering. steve.whitehouse@thomson.com sw/pp COPYRIGHT Copyright AFX News Limited 2006. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited