Merkel expresses concern over Japan's currency policy

DAVOS, Switzerland (AFP) - German Chancellor Angela Merkel on Thursday expressed concern about Japany's foreign exchange policy, after the central bank bowed to political pressure and loosened monetary policy.

"I will admit I am not without some concern about Japan right now," Dr Merkel told top business and political leaders at the World Economic Forum (WEF) in Davos.

She said there was an increasing awareness of what she called "political influences or manipulations of the exchange rate" due to debates on the issue within the G-20 club of leading industrial nations.

"The Chinese government actually reacted quite favourably and responded to our demand with a certain policy change," said Dr Merkel.

Japan's new administration led by Prime Minister Shinzo Abe called for the Bank of Japan (BOJ) to become more active in economic policymaking, raising concerns about central bank independence, a cherished concept in Germany.

On Tuesday, the BOJ responded by adopting a 2 per cent inflation target and setting out plans for indefinite monetary easing in a policy shift that led to accusations the central bank had succumbed to political pressure.

Germany has been quite strident in its opposition to the move, with its own central bank chief, Bundesbank president Jens Weidmann, talking of "disturbing abuses" and accusing the government of "interfering massively".

Finance Minister Wolfgang Schaeuble also told the Bundestag lower house of Parliament that he was "quite concerned by the new policies of the newly elected government in Japan".

Since the move, Tokyo has been fighting off accusations that it has orchestrated a drop in the value of the yen to boost exports and its economy.

"Japan has no intention whatsoever" of devaluing the yen, Tokyo's top financial diplomat Takehiko Nakao said in an interview with the Wall Street Journal published on Thursday.