• Kyodo

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U.S. President George W. Bush signaled Tuesday he will urge Japan to refrain from weakening the yen through market intervention when he meets Prime Minister Junichiro Koizumi in Tokyo on Friday.

“I will remind him that our position, when it comes to currency exchanges, is that the market ought to decide the relative values of currencies based upon the fiscal policy of each government, the monetary policy of each government, the future economic picture of each country,” Bush said in an interview with Fuji Television Network Inc.

At the same time, Bush said he will tell Koizumi that the U.S. is maintaining a policy of favoring a strong dollar.

In a separate interview with Asian journalists ahead of his upcoming Asia-Pacific tour, Bush voiced readiness to press Chinese President Hu Jintao to adopt a more flexible currency system that would allow market forces to set exchange rates.

“I’m going to say that where there is trade imbalance, countries need to be mindful that we expect there to be fair trade,” Bush said. “And I fully understand a competitive world is one that I think is positive, so long as the competition is fair.”

Bush is scheduled to meet Hu in Bangkok on Sunday on the sidelines of the summit of the Asia-Pacific Economic Cooperation forum.

The foreign-exchange issue is becoming politically sensitive in the United States, with the Bush administration under strong pressure from U.S. manufacturers.

Bush is making job creation a priority to help secure his re-election next year, but the U.S. manufacturing sector is shedding jobs.

U.S. manufacturers say Japan and China are keeping their currencies artificially weak against the dollar to bolster export earnings, which in turn weakens U.S. exports.

They have been criticizing Japan for its repeated market intervention and China for its policy of pegging the yuan to the dollar.

It is unlikely that the Bush administration will publicly drop its “strong dollar” policy because that could cause massive outflows of foreign capital from the U.S. market, funds that are needed to finance the huge U.S. current account deficit.

But many market participants believe the Bush administration, under pressure from U.S. manufacturers, tacitly favors a moderate weakening of the dollar.

Ready and willing

Japan is ready to intervene in the foreign-exchange market to halt rapid currency fluctuations, the top government spokesman indicated Wednesday.

Chief Cabinet Secretary Yasuo Fukuda told reporters that Japan does not officially announce the extent of its market intervention, but added, “We don’t deny either that interventions are a way to deal with rapid moves in the foreign-exchange market when we judge they could largely affect the economy.”

His comments came after U.S. President George W. Bush signaled Tuesday that he will urge Japan to refrain its massive interventions to weaken the yen when he meets with Prime Minister Junichiro Koizumi in Tokyo on Friday.

Koizumi meanwhile told reporters Wednesday that Japan backs Washington’s strong dollar policy, in response to Bush’s remark that he will tell Koizumi that the U.S. is maintaining a policy of favoring a strong dollar.

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