U.S. President Donald Trump's charge that Tokyo is manipulating the yen's exchange rate lower — and blaming that as a key culprit behind the trade deficit that the United States has with Japan — is irrational and needs be clearly rejected. The criticism voiced by Trump and his team against China and Germany — the two other largest sources of the U.S. trade deficit — for the weakness of their currencies could also constitute a verbal intervention in the currency market by the U.S. administration. Prime Minister Shinzo Abe, when he holds the scheduled talks with Trump next week, should make the points clear and warn him against the confusion that his protectionist remarks could cause to the global economy.
"You look at what China's doing, you look at what Japan has done over the years. They play the money market, they play the devaluation market and we sit there like a bunch of dummies," Trump reportedly said in a meeting with pharmaceutical company executives in Washington on Tuesday. His trade adviser Peter Navarro also slammed Germany for using a "grossly undervalued" euro to gain an unfair trade advantage over the U.S.
Japan has not intervened in currency markets since its monetary authorities carried out yen-selling and dollar-buying operations in November 2011. Trump's attack on China's currency policy is misguided because Beijing's recent intervention is aimed at bolstering the value of its yuan against the dollar to stop the currency's excessive downslide, which threatens to drive capital out of the country. Germany cannot push the euro lower since the monetary policy of the eurozone countries is monopolized by the European Central Bank.