Global policymakers will discuss the impact of unprecedented monetary policy easing at meetings in Washington this week along with the softly-softly approach central banks will need to eventually wean the world off super-cheap funds.
The Bank of Japan (BoJ) has joined other major central banks in aggressive policy stimulus, pledging to inject $1.4 trillion over the next two years and fanning tensions over currency wars.
Officials preparing for Group of 20 talks on the sidelines of World Bank and International Monetary Fund meetings said Japan's stimulus would dominate discussions on the world economy, especially the repercussions on asset prices and risks of stoking speculative buying.
"Everyone is interested in a strong Japanese economy, but the repercussions of these measures and their viability need to be explored," one G20 official said on condition of anonymity.
The G20 finance ministers and central bankers would probably confirm a February pledge to avoid competitive currency devaluations, officials said. The yen hit multi-year lows against the euro and dollar after the BoJ move.
"Overall the view is that Japanese initiatives focused on the country's domestic problems go in the right direction," a Euro zone official said. "But there will be a debate on the consequences outside of Japan, including on foreign exchange rates."
The G20 will also spar over debt reduction goals, with the US against setting targets while others back a proposal to cut public debt over the longer term to below 90 per cent of gross domestic product.
A debt-cutting pact struck in Toronto in 2010 will expire this year if leaders fail to agree to extend it at a September summit of leaders. Delegates at Thursday and Friday's talks hope to at least move toward a proposal for the leaders.
Some members of the G20 - which groups major developing nations and advanced economies - worry that strict targets may derail the still-fragile economic recovery, and others fret that loose fiscal policy may pave the way for future crises.
"The goal is and remains sustainable debt levels," a German official said. "Some believe you get this with consolidation, others say growth. We say growth-friendly consolidation."
Exit, eventually
The IMF has trimmed forecasts for global growth given sharp spending cuts in the US and Europe's continuing debt crisis, in which Cyprus became the latest country to need a bailout.
Although the global lender thinks it is appropriate for advanced nations to keep up monetary stimulus for now, it is also urging policymakers to start thinking about the consequences of ending ultra-easy policies.
Emerging markets are pushing for the IMF to look into the impact of years of stimulus, after major central banks not only cut official interest rates to 1 percent or less but also pumped extra money into their banking systems and economies.
The US Federal Reserve, which has already expanded its balance sheet by more than $2 trillion, is buying $85 billion a month in bonds; the European Central Bank has lent banks more than euro 3 trillion ($3.94 trillion) in long-term loans and the Bank of England has bought £375 billion ($573.43 billion) of bonds, even before the BoJ's $1.4-trillion effort.
"Interest rates are now at very low levels and ... we can see that there is a risk," said Russian Finance Minister Anton Siluanov, whose country holds the rotating G20 chair.
"In case of raising interest rates, the rising cost of debt will lead to yet another wave of debt problems, as the cost of servicing sovereign debt will increase."
Although major economies are still far from unwinding bond-buying or raising rates, emerging economies in particular are eyeing market expectations for the timing of an exit as these will have an impact on long-term market rates.
The Institute of International Finance calculates that emerging markets have received net foreign capital inflows of $3.3 trillion in the last three years, a wall of money that has pushed up currencies and prompted some to slap on capital controls. But a reverse could be just as painful.
Investors might dump bonds as central banks begin to reverse their quantitative easing, leading to a jump in long-term rates that could disrupt flows to emerging markets, cause losses at banks and increase credit risks, the IMF has warned.
Officials said the hot-button issue of IMF reform would be discussed but negotiations on increasing emerging markets' say in the fund had effectively stalled.
