By Jane Wardell and Ian Chua
SYDNEY (Reuters) - A weakening outlook for much of the global economy means Japan and Europe are unlikely to be accused at this week's G20 Leaders Summit of starting a currency war, despite recent monetary policy moves that have devalued the yen and the euro.
As the Group of 20 leading industrialised countries struggle to make progress towards a goal of adding 2 percentage points to world growth by 2018, the latest quantitative easing rounds are likely to escape harsh criticism.
"There is a more level-headed approach applying here than was the case a few years ago when G20 members were a lot more vocal in criticising each other," said Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital.
"The reality also is that Japan has been in the doldrums for 20-odd years, in and out of recession, and to do something about it they have to reflate their economy and that requires easier monetary policies," Oliver added. "If a weaker yen is part of it, then that is the cost that has to be paid."
The weakening of the yen follows a decision last month by the Bank of Japan to dramatically expand its debt-buying stimulus drive. That pushed down bond yields and sent the yen to 115.52 against the dollar last week, its weakest in seven years.
The European Central Bank, meanwhile, announced an expansionary "new phase" of monetary policy early last month. The dollar last week reached a four-and-a-half year high against the euro.
Yet while the United States faced a barrage of complaints from the G20 grouping four years ago when its own quantitative easing policy led to a significant devaluation in the dollar, it is not expected to retaliate this time around.
With the US emerging as the star of an otherwise slumping global economy - its job market is expanding and GDP is rising - it can afford to be magnanimous.
"Japan's timing for this round of QE is good," said James Morley, Professor of Economics at the University of New South Wales Business School. "The recent positive economic news in the US means that it can tolerate a higher dollar, and without the US on board, it is unlikely that the remaining G20 members would want to criticise Japan's QE policy."
French Finance Minister Michel Sapin was sanguine on the falling yen and the prospect of it being a talking point at this week's summit of world leaders in Brisbane.
"What I see is that the euro continues to weaken which is good news for us," Sapin told Reuters.
Still, South Korea has warned it won't sit on its hands while a tumbling yen undercuts the country's export competitiveness.
The relative strength of the Japanese and South Korean currencies is a sensitive topic in Seoul, given the rivalry between the two countries, and the yen has dropped 30 percent against the won in the past two years.
Bank of Korea Governor Lee Ju-yeol said on Friday that while there are limitations to South Korea's ability to counter the weakening yen, "we will not stand pat."
GROWTH GOAL
Japan's monetary policy easing underscores the difficult task faced by the G20 in meeting the extra two percent global growth goal, instigated in February under Australia's presidency of the grouping.
Members from China to Japan, Germany and Russia have all stumbled in recent months as the Organisation for Economic Cooperation and Development (OECD) slashed its growth forecasts for most major economies.
Amid fears that Europe may be sliding into its third recession since 2008, U.S. Treasury Secretary Jack Lew has called for the euro zone and Japan to do more to boost demand and revive activity.
Australian Treasurer Joe Hockey has outlined an ambitious agenda of boosting world growth, fireproofing the global banking system and closing tax loopholes for giant multinationals.
(Additional reporting by Christine Kim in Seoul and Jean-Baptiste Vey in Paris.)