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Treasury fires 'shot across bow'

U.S. to press Abe on yen ‘devaluation’

Bloomberg

The U.S. Treasury Department said it will press Japan to refrain from competitive devaluation while stopping short of accusing it of manipulating the yen, in a report on exchange rates.

The Treasury will pressure Tokyo to adhere to international commitments so as “to remain oriented toward meeting respective domestic objectives using domestic instruments, and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes,” the department said in its semiannual currency report to Congress that was released Friday.

The Bank of Japan surprised markets April 4 by doubling monthly bond purchases to almost match the U.S. Federal Reserve’s monetary easing, and by setting a two-year horizon for achieving its goal of 2 percent inflation. BOJ Gov. Haruhiko Kuroda said Friday there’s no time limit for the stimulus.

The yen has depreciated against all 16 of its most-traded peers since April 4, declining 2.2 percent to the dollar, 3.5 percent against the euro and 2.8 percent versus the Australian dollar.

“This is a shot across the BOJ’s bow,” Kit Juckes, a global strategist at Societe Generale SA in London, said. “Everyone still supports Japan’s fight against deflation, but the U.S. would much rather the yen did not weaken significantly further.”

Juckes said that until recently, Washington had been supportive of Tokyo policies. “How could they not be after years of calling for them to combat deflation?” Juckes asked. “Now, with the yen falling so far, so fast, the Treasury has changed its tune.”

Japan last week reached a deal with the U.S. on bilateral trade issues that clears the way for the world’s third-largest economy to join talks as early as July on creating the Trans-Pacific Partnership free-trade framework. The regional trade initiative would lower tariffs in countries that account for 40 percent of global trade.

The U.S. is reiterating statements by the Group of Seven and Group of 20 that macroeconomic policies “should be directed at the domestic economy and not at the exchange rate,” said Edwin Truman, a senior fellow at the Peterson Institute for International Economics in Washington.

The U.S. will be “watching to make sure that the focus of ‘Abenomics’ is on stimulating the domestic Japanese economy and not its external sector,” Truman said, referring to the economic and fiscal policies of Prime Minister Shinzo Abe.

Meanwhile, the Treasury declined in the report to name China a currency manipulator while saying the yuan “remains significantly undervalued.” It added that “intervention appears to have resumed, and further appreciation of the (yuan) against the dollar is warranted.”

The Treasury said it will press China for policy changes and greater exchange-rate flexibility.

The administration’s “refusal to label China a currency manipulator once again demonstrates President Barack Obama’s deep-seated indifference to a major, ongoing threat to American manufacturing’s competitiveness and to the U.S. economy’s return to genuine health,” said Alan Tonelson, a research fellow at the U.S. Business and Industry Council, which represents about 2,000 manufacturers.

  • Christopher-trier

    Oh, well isn’t that nice… The USA, the world’s biggest currency manipulator, accuses Japan of doing the same! The same country that prints $100,000,000 a month, a country that is debating minting a $1,000,000,000,000 platinum coin is condemning Japan for trying to keep its currency from being overvalued? Oh, please…
    Wake up Japan, you can’t count on the USA for anything.

    • Yoyojiggywitit!

      unfortunetly, japan has no choice but to depend on them. after WW2, japan lost it’s right to own a real military, their current one; the JSDF can only do so much due to restrictions imposed on Japan after world war 2. If japan was attacked, they’d need the USA to fight the battles that they, by treaty, can’t, or, at the very least, get the USA to weaken the articles that restrict japans militray force, so that they can do things their own way. but doing THAT would upset china and korea who still have sore spots from WW2, and things could be even more tense than what they are now.

      i agree with you that the USA is a huge hypocrite when it comes to this currency issue, and if i was prime minister, i would just humour them and do what was needed to restore japan to a strong economic country again, i would have to do it in such a way that i don’t piss off the USA.

      not that it matters, i’m pretty sure shinzo abe and the rest are going to do the same thing anyway. it’s clear that they’ve have had enough of half heart-ed efforts to restore their country. i just hope they keep it up and don’t carry their actions out to the extreames.

  • StevenStreets

    Fiat Specie Central Banks cant exist without deceiving the people and corrupting their government. Constitutional Democracy is incompatible with central bank fiat specie. Fiat specie is the currency of military dictatorships and financial oligarchys. Their perpetually devalued currency is the biggest burden working familys have to raising and educating their children.

  • Ken5745

    No country can print its way to wealth,not even the USA or Japan. This is because the end result is that inflation will rise and so will interest rates.

    When that rate rise happens, not only will the cost of servicing Japan’s enormous public debt (245% over GDP) take a bigger chunk of tax receipts but the stock market and the bigger bond market will swoon.