Japan has called into question South Korea’s leadership of the Group of 20 forum because of Seoul’s interventions to stem the won’s rise and insisted its own currency action was qualitatively different.

“As chair of the G20, South Korea’s role will be seriously questioned,” Yoshihiko Noda told a parliamentary panel when asked about South Korea’s currency interventions.

Record low interest rates in rich countries have pushed global investors into emerging markets in search of higher yields, driving up their currencies.

In response, several governments have stepped into foreign exchange markets or tried to curb capital inflows, raising fears of a currency “race to the bottom” that may trigger protectionism and hobble global growth.

Japan itself intervened in the currency market in September for the first time in more than six years to try to stem a rise in the yen that threatens its fragile economic recovery.

Noda drew a distinction between that action and more frequent intervention by South Korea and China.

“In South Korea, intervention happens regularly, and in China, the pace of yuan reform has been slow,” Noda said.

“Our message is that we have confirmed at the Group of Seven that emerging market countries with current account surpluses should allow their currencies to be more flexible.”

South Korea did not immediately comment on the remarks.

No consensus
Pressure on China to allow its currency to rise faster is likely to intensify but hopes for a G20 consensus look slim.

German Economy Minister Rainer Bruederle was quoted as saying Beijing should make concessions to avoid foreign exchange tensions turning into a trade war.

“China bears a lot of the responsibility for avoiding an escalation,” Bruederle told Handelsblatt newspaper.

China’s insistence that the yuan’s rise must be gradual is a huge obstacle to the appreciation in Asian exchange rates policymakers say is needed to reduce global imbalances.

It, and other countries, counter that the prospect of the Federal Reserve printing money again will flood the world economy with more liquidity, weaken the dollar and push emerging currencies yet higher.

“It’ll be impossible for the G20 to reach a consensus on currencies. Many emerging economies feel that they are being forced to intervene because of a weak dollar,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.

“China will not succumb to outside pressure.”

Minutes of the Fed’s last policy meeting showed its policymakers thought easier policy may be needed “before long” to bolster a struggling recovery.

China’s chief G20 currency negotiator Cui Tiankai said Beijing was trying to avoid a currency stand-off but that no specific currency should be on the G20 agenda.

“We are doing our best to avoid that,” Cui, a foreign vice-minister, said on the sidelines of a conference in Seoul. “But it requires efforts of all the G20 members, not China alone.”

US Treasury Secretary Timothy Geithner said he saw no risk of a global currency war but on the need for a stronger yuan, he added: “We just want to make sure it’s happening at a gradual but still significant rate.”

The major world currency not being talked down is the euro, as the European Central Bank ponders a reversal of ultra-loose policy while the Fed is poised to ease further and Japan has already cut rates to zero.

“In the G4 space, the ECB is the only central bank that is talking of an exit policy and that is helping the euro,” said Ankita Dudani, G-10 currency strategist at RBS.

Analysts said Tokyo’s criticism of Seoul stemmed from its worries about competitiveness. The yen is up about 13 percent against the dollar this year, the won only about four percent.

“Japan feels it has been under pressure not to intervene because of G7 rules but people outside seem to be playing by different rules,” said Robert Feldman, chief economist at Morgan Stanley MUFG Securities in Tokyo.

Japanese Prime Minister Naoto Kan urged Seoul and Beijing to act responsibly but acknowledged Tokyo’s delicate position.

“I want South Korea and China to take responsible actions within common rules, though how to say this is difficult because Japan has also intervened,” he told lawmakers.

Japan sold 2.1 trillion yen ($26bn) in September to curb the yen’s strength versus the dollar. South Korea has intervened to the tune of about $13bn since late September but analysts said it has acted more aggressively in relative terms.