• Kyodo

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The Treasury Department said Friday it has retained Japan, China and others on a list of countries it monitors over what it calls potentially “unfair” currency practices, but concluded that none of the U.S. trading partners is manipulating its currency to gain an unfair trade advantage.

Despite a sharp appreciation of the yen this year, the dollar-yen foreign exchange market has been functioning “smoothly,” the department said in a semiannual report to Congress as it kept Japan, China, South Korea, Taiwan and Germany on the so-called “monitoring list” it created in a previous report released in April.

Switzerland was added to the list this time for what the department called the country’s “significant foreign currency purchases over the last year.”

While referring to Taiwan’s “persistent” foreign currency purchases to limit appreciation of the island’s currency, the department cited high levels of bilateral trade surpluses with the United States and current account surpluses as reasons for Japan and three other countries to be included in the list.

“Treasury will closely monitor and assess the economic trends and foreign exchange policies of the economies on the monitoring list,” the report said.

The administration of U.S. President Barack Obama “will continue to take effective actions to help ensure a level playing field for our workers and companies,” it said.

But the department concluded that “no major trading partner of the United States met the standard of manipulating the rate of exchange between its currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.”

According to the report, Japan has not intervened in currency markets in almost five years, although the value of the yen climbed 18.7 percent against the dollar from January to the end of September.

The report urged Japanese monetary authorities to refrain from intervening in currency markets.

“Treasury assesses that the dollar-yen foreign exchange market has been functioning smoothly, and reiterates the importance of all countries adhering to their G-20 and G-7 commitments regarding exchange rate policies,” it said, referring to the Group of 20 developed and emerging economies and the Group of Seven industrialized nations.

Without actually stepping into currency markets, Japanese authorities “have made persistent public statements to restrain appreciation in 2016, characterizing yen-dollar movements as ‘rough’ and warning that they ‘will take firm action’ if necessary,” the report pointed out.

The Treasury urged China to ensure “more transparency over exchange rate management and goals,” saying it estimates that from August 2015 until August this year, Beijing sold more than $570 billion in foreign currency assets to prevent more rapid depreciation of the yuan, also known as renminbi.

“Strong adherence to G-20 commitments to refrain from competitive devaluation and not to target exchange rates for competitive purposes will enhance the credibility of China’s exchange rate regime,” it said.

The report noted that China’s current account surplus fell to 2.4 percent of the country’s gross domestic product for four quarters through June this year from 3 percent over the full year 2015.

The Treasury suggested that South Korea and Germany take further steps to spur domestic demand, including more robust use of fiscal policy tools.

The department also hailed the significance of the yet-to-be ratified Trans-Pacific Partnership free trade pact, saying the United States, Japan and 10 other members have adopted — for the first time in the context of a trade agreement — provisions that address unfair currency practices.

“When TPP comes into force, Treasury will be better able to monitor the exchange rate commitments made by partner countries due to the transparency and accountability provisions,” it said.

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