G20 nations will not single out Japan over the yen and will disregard a call from G7 powers not to use economic policies to target exchange rates, according to a communiqué drafted for finance leaders meeting in Moscow.

A G20 delegate who has seen the draft also said it would make no mention of debt-cutting targets, something Germany is pressing for but which the US wanted struck out.

If adopted by G20 finance ministers and central bankers meeting in Moscow on today and tomorrow, Japan will escape any censure for its expansionary policies which have driven the yen lower and drawn demands for action from some quarters.

"There will not be a heavy clash about currencies in the end, because nobody can risk such a negative signal," said another G20 delegation source.

The currency market was thrown into turmoil this week after the Group of Seven - the United States, Japan, Germany, Britain, France, Canada and Italy - issued a joint statement stating that domestic economic policy must not be used to target currencies, which must remain determined by the market.

Tokyo said that reflected agreement that its bold monetary and fiscal policies were appropriate but the show of unity was shattered by off-the-record briefings critical of Japan.

The G20 draft merely sticks to previous language on the need to avoid excessive currency volatility, the delegate said.

The yen has fallen by around 20% since November.

Having firmed earlier, it turned tail and dropped about 0.6% against the dollar and euro in response to the communiqué details.

"Although this week has been marked by volatility surrounding G7 and G20, it appears the path to currency weakness will remain intact following those events," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.

One senior G20 source said any reference to targeting exchange rates was not acceptable to China, which is the world's number two economy and holds much of its $3.3 trillion in foreign reserves in US Treasury bonds.

Officials lined up to pour cold water on talk of a currency war featuring competitive devaluations.

European Central Bank President Mario Draghi said recent sparring over currencies was "inappropriate, fruitless and self-defeating" and US Treasury official Lael Brainard warned against "loose talk".

Mr Draghi also said the euro's exchange rate was in line with long-term averages, a point endorsed by International Monetary Fund chief Christine Lagarde.

"The current talk of currency wars is overblown," she told the G20 ministers and central bankers. "There is no major deviation from fair value of major currencies."

Other policymakers in Moscow said Japan's aggressive fiscal and monetary expansion aimed at raising the inflation rate to 2% was to be welcomed if it boosted growth.

"There is no competitive devaluation, there are no currency wars," Russia's finance sherpa, Deputy Finance Minister Sergei Storchak, told reporters. "What's happening is market reaction to exclusively internal decision making."

Australian Treasurer Wayne Swan indicated support for Japan's monetary policy saying "everybody's got a stake" in its ability to foster growth.

And Indonesia, one of the rising Asia-Pacific economies, said it was also less concerned about the exchange rate of the yen than about Japanese recovery.

"If the Japanese increase their domestic demand it will help Indonesia, especially from the export side," said Hartadi Sarwono, deputy central bank governor.

Others have noted that the United States has created new money just as the Bank of Japan has, although Federal Reserve Chairman Ben Bernanke insisted the US central bank was acting in line with the G7 statement, "using domestic policy tools to advance domestic objectives".

Bank of Japan Governor Masaaki Shirakawa said he would defend Tokyo's bold approach to monetary easing, saying the policies were aimed at stabilising the domestic economy.

He also said the bout of yen weakness merely reflected receding risk aversion among investors globally.

The meeting in Moscow of ministers from the G20 nations, which account for 90% of the world's gross domestic product and two-thirds of its population, also looked set to lay bare differences over the balance between growth and austerity policies.

The draft communiqué reflected a row brewing between Europe and the United States over extending a promise to reduce budget deficits beyond 2016.

A pact struck in Toronto in 2010 will expire this year if leaders fail to agree to extend it at a G20 summit of leaders in St Petersburg in September.

The G20 put together a huge financial backstop to halt a market meltdown in 2009 but has failed to reach those heights since.

At successive meetings, Germany has pressed the United States and others to do more to tackle their debts. Washington in turn has urged Berlin to do more to increase demand.

"It's very important to calibrate the pace of fiscal consolidation," Ms Brainard said. "It's ... important to see demand in the euro area and some of that must take place through internal rebalancing."

There will be no direct mention of fiscal targets, in response to US pressure, reflecting its focus on running expansive policies until unemployment falls, the G20 delegate said.

Canadian Finance Minister Jim Flaherty, addressing a working dinner, said the growth versus austerity debate represented a "false dichotomy" that should not preclude action to boost jobs and growth now while targeting balanced budgets later.