The Group of Seven industrialized nations, in a communique Tuesday, cautioned that “excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability.”

In an obvious reaction to policy moves by Japan, which have led to a sharply depressed yen, the G7 – of which Japan is a member – said the group should continue to be “oriented toward meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.”

The G7, which also includes Canada, the United States, Britain, Germany, France and Italy, has called on members of the G20, primary emerging markets but also including China, to do much the same by adopting flexible rates.

“We … reaffirm our longstanding commitment to market-determined exchange rates and to consult closely in regard to actions in foreign exchange markets,” the group said.

Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney signed off on the G7 communique earlier Tuesday, ahead of a regular G20 policy meeting on Friday and Saturday in Moscow.

“It’s important that we as a G7 go in united and forcefully to the G20 (meeting) to enlarge that commitment as quickly as possible among the major emerging economies,” Carney told the House of Commons finance committee, just hours after the G7 addressed its concerns.

Carney said some G20 members “entirely ascribe to the flexible exchange rates and are supportive, (while) others have a lot of work to do in the regard.”

“In part, it’s a dysfunctional-y of the international monet-ry system that causes that.”

Carney, who will leave the Bank of Canada on June 1 to take the top job at the Bank of England, was making one of his last appearances before lawmakers in Ottawa.

The strong Canadian dollar has often been blamed for the country’s weakened export market, although the higher loonie does encourage companies to import equipment at a relative discount.

“If we were to try to control the level of our exchange rate, we would have to start to close what is one of the most open and effective capital markets, money markets, in the world, in order to be successful,” Carney said.

Speaking specifically about Japan, which recently raised its inflation target to two per cent, he said there is “some concern that associated with those major very positive developments in macro policy, that Japanese authorities were targeting a certain level of the exchange rate.”

“The crucial point that we make here in Canada, and the Japanese authorities have agreed to acknowledge, is that monetary policy is focused on domestic outcomes.

“So if you’re focusing on the two per cent inflation target, you’re targeting that domestic outcome, not the exchange rate.”

But Craig Alexander, chief economist at TD Economics, said the speculation over currency wars “is completely overblown.”

When the Bank of Japan, the U.S. Federal Reserve and the Bank of England “are all pursuing quantitative easing, all else equal, this will act to put downward pressures on their domestic currencies,” Alexander said.

“From a Canadian point of view, there is no question that the Canadian dollar is overvalued,” he said. “Just look at Canada’s trade deficit and current account deficit.”

That over-valued loonie is the result of other nations “exerting downward pressure on their currencies,” he said.