AYLESBURY The United States told Japan it would be watching for any sign it was manipulating its currency downward, but Tokyo said it met no resistance to its policies at a meeting of Group of Seven finance ministers which will conclude on Saturday.
As ministers and central bankers met on Friday in a stately home set in rolling countryside 40 miles outside London, differences were also evident over whether to prioritise debt-cutting or promoting economic growth.
U.S. Treasury Secretary Jack Lew said Japan had "growth issues" that needed to be dealt with, but that its attempts to stimulate its economy needed to stay within the bounds of international agreements to avoid competitive devaluations.
"I'm just going to refer back to the ground rules and the fact that we've made clear that we'll keep an eye on that," Lew told the CNBC business news channel.
The yen hit a four-year low against the dollar on Friday, beyond the psychologically important 100-yen mark. It also trades at a three-year low against the euro.
The moves were driven in part by Japanese investors shifting into foreign bonds, a move that had been expected since the Bank of Japan unveiled a massive stimulus plan in January.
Tokyo insisted its tumbling yen was not a hot topic at the meeting of finance chiefs, despite rhetoric about a global currency war.
"Japan took bold monetary and fiscal action to end prolonged deflation, with the government and the Bank of Japan working far more closely together," Japanese Finance Minister Taro Aso told reporters after hours of talks with fellow G7 ministers and central bankers.
"The G7 didn't have a particular problem ... I think Japan's stance is gaining broader understanding," he said.
Policymakers are concerned Japan is engineering an export-led recovery that could hinder other regions' ability to grow.
But having urged Tokyo for years to do something to revive its economy, other world powers are not in a strong position to complain now that it is doing so. Then there is the fact that central banks such as the Federal Reserve and Bank of England have printed money in the way the Bank of Japan is.
"It is important that in line with the previous decisions at the G20 and IMF that there is no talk about currency wars," EU economics chief Olli Rehn told reporters as he arrived at the summit. "There is discussion about how better to coordinate our economic policies."
German Finance Minister Wolfgang Schaeuble said foreign exchange rates were on the agenda and that Japan had promised to take a cautious approach to the currency issue.
Participants welcomed the return to an informal G7 with no official communique. That could mean more robust debate than is generally aired at the meetings of the United States, Germany, Japan, Britain, Italy, France and Canada.
"There are no taboo subjects," International Monetary Fund chief Christine Lagarde said.
A senior Japanese Finance Ministry official said Tokyo was honouring an agreement that monetary policy should focus on domestic objectives, not manipulating currencies. As a result, Japan does not mind other countries monitoring its policies, the official said.
He also said there was no discussion on the yen's decline at the G7 session on Friday.
Chancellor George Osborne, host of the two-day meeting at the 17th-century Hartwell House, is keen for his peers to focus on what more central banks can do to help growth at a time when most governments are trying to cut bloated debts.
This is "an opportunity to consider what more monetary activism can do to support the recovery, while ensuring medium-term inflation expectations remain anchored," he said.
Debate is also heating up about the need for governments to ease up on austerity, something Germany, Britain and Canada view as a mistake but Washington, Paris and Rome are in favour of.
"For a global recovery ... it cannot be led by the United States alone ... There are countries in Europe that have more fiscal space to create a bit more economic demand," Lew said.
Rehn said there was room for a "smoother path of fiscal adjustment" in Europe as long as structural reforms intensified.
Britain's Finance Ministry said the talks would also focus on bank regulation and tax avoidance.
The emergency rescue of Cyprus in March acted as a reminder of the need to finish an overhaul of the banking sector, five years after the world financial crisis began.
As at last month's IMF meeting, Germany may come under pressure to give more support to a banking union in the euro zone. The plan could help strengthen the single currency area, but Berlin worries it may pay too much for future bank bailouts if it signs up to a scheme to wind up failing banks.
Nonetheless, Osborne will push his fellow G7 ministers to set up mechanisms worldwide to shut down failing banks, which would otherwise be considered "too big to fail".
Some officials said they did not know why Britain had called the meeting so soon after the IMF discussions in Washington.
No formal decisions are expected at the meeting, which will help prepare the way for a G20 leaders' summit in Russia in September. Talks will wrap up with a round of closing news conferences on Saturday afternoon.