The Group of Seven finance ministers and central bankers reaffirmed their commitment to market determined exchange rates on Tuesday in a bid to calm rising fears of a global currency war.

"We reaffirm that our 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," the group, representing advanced economies, said in a statement released in London.

"We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability."

G7 said the advanced nations will continue to consult closely on exchange markets and extend cooperation. The group's last joint comment on exchange rates was in March 2011 in response to the movements in the Japanese yen following the devastating tsunami and earthquake that struck the country earlier that month.

Efforts would be focused on preventing a spiral of retributive devaluations similar to what happened in 1930s, when weak economies took their currencies down in an attempt to boost exports.

Concerns are rife that the Japanese government led by Prime Minister Shinzo Abe is targeting a weaker yen in its efforts to end deflation. However, Japan has denied such allegations. Meanwhile, the recent rhetoric from G7 leaders and other countries suggest further weakening in the Japanese currency is welcome.

The Japanese yen has fallen sharply against the dollar in recent months. Analysts expect the yen weakness to continue for some time as the government and the Bank of Japan under a new chief are likely to favor aggressive easing.

Elsewhere today, the Swiss National Bank President Thomas Jordan said the franc remains overvalued and the bank will maintain the 1.20 floor price against the euro, imposed in 2011, as long as needed.

He expects the Swiss currency to weaken further against the euro. The franc has weakened more than 2 percent against the euro this year as fears of a break up of the currency union receded.

Central banks are not engaged in a currency war, Jordan said. Fighting deflation is not currency war, he asserted.

That said, exchange rates are increasingly causing concerns. Last week, French President Francois Hollande said that Europe must determine a realistic medium term exchange-rate for the euro. The single currency must not be allowed to fluctuate according to the mood of the market, he added.

A stronger euro could hurt Eurozone exporters by reducing their competitiveness. Weak exports could lead the 17-nation economy into a deeper recession.

Calls for exchange rate manipulation faces stiff opposition from euro area members like Germany. German Economy Minister Philipp Roesler said the objective must be to strengthen competitiveness and not to weaken the euro. Bundesbank President and European Central Bank policymaker Jens Weidmann has also expressed concerns over the increasing political pressure on central banks to manipulate exchange rates.

Brazilian Finance Minister Guido Mantega, who is credited with coining the phrase "currency war" in 2010, warned in an interview to Reuters last week that the global exchange rate imbalances could get even worse if Europe also joins the league. The strengthening real is a concern for Brazil as it lowers demand for sugar exports.

The G7 consists of the U.S., the U.K., France, Germany, Italy, Canada and Japan. The meetings are also attended by representatives of the EU, the European Central Bank and heads of international financial institutions. The U.K. holds the rotating Presidency of the G7 throughout 2013.

The statement comes just days ahead of the two-day meeting of the Group of 20 nations in Moscow that starts on Friday. The issue of currency war is expected to come up for discussion during the talks.

RTTNews