Amid growing concerns in the United States and Japan about the Chinese yuan’s peg to the dollar, visiting U.S. Treasury Secretary John Snow said Monday foreign exchange rates should be determined flexibly by the market.
“My long-held view is that a well-functioning international financial system is one based on flexible exchange rates determined in competitive markets,” Snow told reporters at the U.S. Embassy in Tokyo after a series of meetings with Japanese leaders.
Later in the evening, Snow met with Finance Minister Masajuro Shiokawa. The two agreed that China should think about what would be really beneficial to China regarding the yuan and that this message should be conveyed to Beijing.
China’s stance on retaining the yuan peg is costing U.S. jobs by eroding U.S. manufacturers’ competitiveness, according to some critics. At the same time, the peg has given U.S. investors in China an edge.
Concerning Japan’s long-held preference for a weaker yen, Snow merely said he would like to see “strong and more robust domestic-led growth” that would lead to greater purchases of U.S. goods.
Japan has intervened heavily in the foreign exchange market this year to essentially peg its currency between 115 yen and 120 yen to the dollar.
Economists say that without the massive intervention effort, the rate would be around 105 yen to the dollar.
The move has irritated U.S. manufacturers, who say Japan is trying to artificially devalue the yen to boost both exports and profits of its companies. They also point out that the effort stymies Japan-bound U.S. exports.
Earlier in the day, Snow met with lawmakers of the Liberal Democratic Party and discussed the yuan issue.
Five LDP lawmakers, including policy chief Taro Aso, urged Snow to bring up the issue in a meeting of finance ministers from the Asia-Pacific Economic Cooperation forum to be held in Thailand starting Thursday, participants in the talks said.
Snow replied that he is aware the issue must be dealt with, the participants said.
Japan and the United States see the currency, which is pegged in a narrow range of around 8.28 yuan to the dollar, as undervalued.
China, however, has shown no signs of taking such steps in the near future.
In a meeting with economic and fiscal policy minister Heizo Takenaka later in the day, Snow welcomed Japan’s reform efforts, including progress in the disposal of nonperforming loans at banks, according to Japanese officials. In the meeting at the Financial Services Agency, Snow said that work by Japan to do away with bad loans is “very impressive,” according to an official.
Snow also met with Prime Minister Junichiro Koizumi and Shiokawa at the prime minister’s office and discussed bad loans and banking system reforms.
“We talked about the importance of dealing with nonperforming loans, getting the banking sector healthy again,” Snow told reporters after meeting with Koizumi.