LONDON The role of central banks in shoring up the global economic recovery is set to be a key point of discussion among top financial officials from the world's seven leading economies when they gather in the U.K. this weekend.
The Japanese yen's continuing weakness is also expected to come under discussion now that the dollar has breached the 100 yen mark for the first time in a little over four years.
In a statement Friday ahead of the Group of Seven's two-day meeting at a country house around 50 miles northwest of London, British finance minister George Osborne said the main task officials face over the coming two days is how to "nurture" the recovery.
"The G-7 is an opportunity to consider what more monetary activism can do to support the recovery, while ensuring medium-term inflation expectations remained anchored," said Osborne, who will be hosting the event alongside the Bank of England's governor Mervyn King.
Osborne suggested that this "activism" may involve "targeted interventions" to support lending in weak parts of the economy. The U.K. treasury chief noted that the European Central Bank had already started consultations on how best to boost lending to small and medium-sized enterprises -- the key engines of economic growth and employment.
U.S. Treasury Secretary Jacob Lew said the G-7 discussions should center on how to boost growth and generate jobs. He said the U.S. economy was healing but not at a fast enough pace.
"We're moving in the right direction but while growth is encouraging it's not sufficient," Lew told CNBC.
He singled out Europe as a laggard and said there was a need for policymakers there to get the right balance between austerity and growth.
"We're not arguing whether we need to get our fiscal house in order, we all need to do that, the question is when and how," Lew said.
The Treasury Secretary noted that some progress had already been made in striking that balance with the easing of some deficit-reduction deadlines among some of the 17 European Union countries that use the euro.
And in a hint that Germany should do more, Lew added that some countries have "more fiscal space" than others to boost demand. Many economists argue that Germany -- the government and its people -- should be spending more to stimulate growth across the rest of the eurozone. Europe's largest economy is running a budget surplus, albeit a fairly small one, as well as a current account surplus that is equivalent to around 6 percent of its annual gross domestic product.
In the immediate aftermath of the financial crisis that exploded following the collapse of U.S. investment bank Lehman Brothers in 2008, governments around the world tried to support their economies by increasing spending. But with debt levels around the world, not least in Europe, having risen to generational highs, that method of support has been scaled down and monetary policy has had to take on a bigger role.
Given that backdrop, central banks have played an increasingly active role in trying to help the global economy recover from what is widely considered to be its biggest shock since World War II.
Interest rates have been slashed -- to near zero percent in some cases -- and new money-creation policies have been introduced, notably from the U.S. Federal Reserve and the Bank of England.
Earlier this year, the Bank of Japan escalated its attempts to get the Japanese economy out of its two-decade period of stagnation. By doubling its stimulus program, pressure has been piled on to the yen. The more there is of a currency in circulation, the more its value is affected - as witnessed by the performance of the dollar over much of the past five years. While potentially a boon to Japan's export powerhouses, the fall in the yen inevitably creates losers -- that's not ideal for the recession-mired countries in Europe.
The fall value of the yen will form the backdrop to the G-7 discussions that are scheduled to conclude Saturday. On Friday, the dollar breached the 100 yen for the first time in a little over four years. By late morning London time, it was trading 0.6 percent higher at 101.24 yen.
So far there's been a certain amount of support for Japan's economic gamble -- even though the yen's decline potentially makes exports of other countries more expensive. However, for the countries that use the euro, many of which are in recession, less competitive exports may not be too appetizing.
While refusing to directly comment on the yen's current value, Lew said the U.S. was keeping a close watch on developments. As long as Japan doesn't directly target its exchange rate and stays "within the bounds" of international agreements, then Lew said the country needs to deal with its underlying and long-standing economic problems.
Few in the markets expect much change in the G-7's line on currencies from its last statement in February.
"Any remarks are set to remain along the lines of the well-worn mantra that markets should set exchange rates," said Jane Foley, senior currency strategist at Rabobank International.
This is not the first time the yen's weakness has been a cause for debate among the G-7. Back in February, as well as reaffirming their desire for market-determined exchange rates, the G-7 said their "fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates."