German Chancellor Angela Merkel apparently criticized Japan for its credit-easing policy that led to the yen's sharp depreciation against major currencies earlier this year, when she met with Japanese Prime Minister Shinzo Abe on Monday.
Merkel raised the issue of foreign exchange in the meeting and indicated current circumstances surrounding foreign exchange rates could harm the global competitiveness of cheap labor countries, a Japanese official told reporters.
Abe dismissed the criticism saying that his government was in no position to do anything about currency movements, the official indicated.
Merkel also asked Abe to explain how he intended to deal with the country's snowballing fiscal deficit in the meeting on the sidelines of a summit of the Group of Eight major nations in Northern Ireland, Deputy Chief Cabinet Secretary Katsunobu Kato said.
Abe explained his three-pronged economic plan featuring aggressive monetary policy, massive fiscal spending and a growth strategy aimed at encouraging private-sector investment, according to Kato.
In January, Merkel blasted Japan in her remark that directly linked the depreciation of the yen at the time against major currencies, including the euro, to currency manipulation.
In a separate meeting on the fringes of the G-8 summit, Italian Prime Minister Enrico Letta lauded Abe's economic policy aimed at beating deflation and said Italy intended to learn from it.
Letta invited Abe to Italy and asked him to give a lecture on the economic and financial policies there, Kato said.
During another meeting, Abe agreed with Herman Van Rompuy, president of the European Council, to hold a Japan-EU summit in November, with the goal of signing a free trade agreement soon after.
The two sides had planned to hold a summit in March in Japan but it was postponed as the president and other leaders had to deal with the financial crisis that hit Cyprus at that time.
Abe agreed with Canadian Prime Minister Stephen Harper to enhance bilateral cooperation in negotiations for a Trans-Pacific Partnership free trade pact after Japan joins them next month.
Abe and Harper also agreed to boost ongoing talks on a bilateral free trade agreement, Kato said.