By Tetsushi Kajimoto and Leika Kihara
TOKYO (Reuters) - Japan is poised to push for greater cooperation from its G7 partners to soothe market jitters but may struggle to produce measures that could meaningfully restore global market confidence, government sources say.
As economic leaders from G20 nations prepare to meet in Shanghai next week, there is increasing market speculation that the world's largest economies, notably G7 countries, may produce a coordinated policy response to global market ructions and slowing growth. This could include currency intervention.
While G7 policymakers could agree on joint statements that warn against excessive market volatility, Japanese government sources say they may have difficulty agreeing on more concrete steps that instil market confidence in a joint global response.
Some Japanese policymakers doubt currency market intervention could effectively stem yen rises, which are driven by a global wave of risk aversion due to factors beyond their control.
"I doubt whether stop-gap steps like solo currency intervention would work in the face of global risk aversion," said a government source with direct knowledge of currency deliberations.
"What's important is for G20 policymakers to deliver a positive message to shake off negative sentiment that is widespread in the global markets," the source told Reuters.
Global stock markets have taken a hit on concern over China's slowdown and banking-sector woes in Europe. The yen has risen as investors seek the safe-haven currency, hurting Tokyo stocks and threatening to undermine the wealth effect premier Shinzo Abe has generated with his "Abenomics" stimulus policies.
Abe and his finance minister, Taro Aso, have stepped up their verbal warnings to investors against pushing the yen too high, saying that Tokyo will take "appropriate action" against excessive yen swings.
Tokyo is ready to work with G7 nations to convey to markets that they are watching developments with vigilance, government officials said, adding that they may issue an emergency statement before the Shanghai G20 gathering if market turmoil escalates by then.
"We won't rule out any steps, taking into account market developments in the run-up to the G20 meeting," said one source, when asked about the chance of a coordinated G20 response.
But there is no consensus among Japanese policymakers on what steps could be taken beyond issuing verbal assurances through G7 or G20 statements.
Central banks are ready to counter any sudden fund squeeze with emergency liquidity provisions. But coordinated fiscal and monetary stimulus measures by G20 nations seem unrealistic, government sources say, as many advanced economies are left with little policy ammunition.
That leaves solo currency intervention, or verbal threats of one, to weaken the currency among the few remaining tools to stimulate growth.
But Japan may have difficulty gaining consent from U.S. and European counterparts on intervention, with the Bank of Japan's decision to adopt negative interest rates having stocked fears of a "currency devaluation war," some officials say.
"I wonder how Tokyo can manage to convince its G7 partners that it needs to intervene now," said a senior policymaker with knowledge of currency diplomacy.
"I think solo intervention would be quite difficult."