US Treasury Secretary Janet Yellen arrived under the cloud of Washington's debt limit impasse

Niigata (Japan) (AFP) - Support for war-torn Ukraine topped the agenda at G7 finance talks on Thursday in Japan, where ministers and central bankers also weighed concerns ranging from banking uncertainty to US debt default fears.

The meeting of the Group of Seven developed nations comes with the global economy still unsteady after years of pandemic woes compounded by Russia’s invasion of Ukraine.

So the three-day talks in the coastal city of Niigata in central Japan are a chance to set out a vision for financial stability before G7 leaders get together next weekend in Hiroshima.

US Treasury Secretary Janet Yellen arrived under the cloud of Washington’s debt limit impasse, warning that a default risked “catastrophe” and even political brinkmanship on the issue could trigger “serious economic costs”.

She also called for the enforcement of US-led economic measures imposed on Moscow.

“This year, a central piece of our strategy is to take further actions to disrupt Russia’s attempts to evade our sanctions,” she said in a speech as the event kicked off.

The coastal city of Niigata in central Japan is hosting the G7 finance ministers' talks

This includes “identifying and shutting down specific channels used by Russia to equip and fund its military”, and pressuring companies and jurisdictions facilitating evasion, Yellen added.

When G7 finance ministers met in April in Washington, they hailed IMF approval of $15.6 billion in financing for Kyiv, recommitted to sanctions on Moscow and pledged “further actions as needed”.

There has been no official indication that new measures will be agreed to during this week’s talks but the door is open, said John Kirton, director of the G7 Research Group at the University of Toronto.

Fresh action could centre around “strengthening sanctions evasion… starting with China”, he told AFP ahead of the Niigata talks, which Ukrainian Finance Minister Sergii Marchenko will join virtually.

EU officials are already discussing halting exports of sensitive technologies to eight Chinese companies over suspicions they are selling them to Russia.

The G7 could also try to stop tankers from covertly selling Russian oil in violation of the group’s oil price cap, Kirton said.

- Banking stability -

Stronger supply chains, crypto regulation and climate finance will be talking points for the ministers, central bank chiefs, and the heads of the IMF, OECD and World Bank.

Japanese Finance Minister Shunichi Suzuki has stressed the need for vigilance in the banking sector, which is likely to loom large in discussions.

Three regional US banks have collapsed since early March, sparking panic among customers and turmoil for the shares of mid-sized institutions.

The Niigata talks are a chance to set out a vision for financial stability before the G7 leaders get together next weekend in Hiroshima

“The environment surrounding the financial sector has changed drastically, with outflows of funds happening all at once. This is a common challenge faced by countries including Japan,” Suzuki told reporters on Thursday.

Kirton said the G7 could use the Niigata meeting to send a “strong, unified message to reassure and convince customers”, but warned that European members and the United States may disagree on the need for regulation on digital bank runs.

European Central Bank president Christine Lagarde has already insisted “supervision needs to be intrusive and as granular as possible” to minimise risks, in an interview with Japan’s Nikkei business daily.

There will also be a gulf on monetary policy, with Japan maintaining ultra-low interest rates even as most major central banks have hiked theirs to tackle inflation in recent months.

The bloc, which includes Japan, the United States, Germany, Britain, France, Canada, Italy and the European Union, is expected to discuss infrastructure investment in less developed nations.

There has been no official indication that new measures on sanctions will be agreed to at the talks

Japan has been keen to use this year’s G7 for outreach to countries beyond the group, and finance ministers from India, Indonesia and Brazil will join the Niigata talks, along with the South Korean and Singaporean ministers.

The move is seen as key to swaying international opinion on both Russia and China, which funds infrastructure around the world through its huge Belt and Road Initiative.

On Thursday, Yellen touted the opportunities that the G7-led price cap on Russian oil could offer.

“We continue to urge developing countries to save on their oil costs by taking advantage of the price cap to negotiate steep bargains on Russian oil,” she said.