WASHINGTON – 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.