• Bloomberg, Kyodo



Treasury Secretary Steven Mnuchin confirmed the U.S. would stick to pledges the Group of 20 nations hold regarding foreign-exchange markets, Finance Minister Taro Aso said.

“I had a fruitful discussion for the further development of a tie between Japan and the U.S.,” Aso told reporters Friday in the German resort town of Baden-Baden, where G-20 finance chiefs and central bankers gathered over the weekend. “We agreed that it’s important to stick with what the G-20 and G-7 have decided on the matter ” of currencies.

The U.S. reassurance is likely to be a relief to Japanese policymakers, who have ushered in unprecedented monetary stimulus to boost the nation’s recovery, a move that compelled President Donald Trump to criticize Tokyo in January. Bank of Japan Gov. Haruhiko Kuroda, who also attended the G-20, said he wants to explain the need of his monetary easing program as inflation remains low.

“Japan’s biggest task for this G-20 is to keep the U.S. quiet over the yen,” said Daisuke Kakarama, chief market economist at Mizuho Bank Ltd. in Tokyo. “Japan can’t afford to lose understanding from the U.S. as it’s struggling to end deflation.”

The U.S. and Japanese finance chiefs agreed on the G-20’s long-held positions, including that excessive currency moves will adversely impact the economy and one shouldn’t attempt competitive devaluations, according to a senior Finance Ministry official who asked not to be named citing policy.

Meanwhile, finance chiefs apparently succumbed to the clout of Trump’s administration, dropping their long-held pledge to resist protectionism in the grouping’s communique released after their two-day gathering wrapped up Saturday.

Sources from the G-20 countries downplayed the significance of the disappearance of the phrase resisting “all forms of protectionism,” but some observers say the relevance of the group designed to promote international economic cooperation will still be tested.

As Japan is scheduled to start a bilateral economic dialogue with the U.S. in April, Tokyo will likely be required to perform a delicate balancing act between pursuing its own interests and taking heed of its longtime ally.

“The omission of the part about protectionism clearly reflected the stance of the United States,” said Yuji Kameoka, chief foreign-exchange analyst at Daiwa Securities Co.

Kameoka said the United States is unlikely to walk away from free trade but is gradually tilting toward protectionism to correct its trade imbalances.

“When it comes to bilateral talks, the focus is on how much Japan can resist external pressure from the United States,” he added.

Trump and Prime Minister Shinzo Abe agreed to launch the economic dialogue as part of a new framework under which Tokyo and Washington will discuss topics including the general state of the economy, trade and energy.

A growing protectionist sentiment is seen by economists as a bad omen for growth. Trump has pulled the United States out of the Trans-Pacific Partnership agreement, a free-trade deal his predecessor Barack Obama had pushed as part of his “Asia pivot” policy. Abe had hoped the deal would strengthen Japan’s deflation-haunted economy.

Much remains to be seen over how much of what Trump has promised to do, including increased infrastructure spending and tax cuts, will be implemented and translate into economic growth even as some post-election euphoria remains in financial markets.

In the latest communique, the G-20 acknowledged that there are downside risks to the global economy and vowed to use all policy tools — monetary, fiscal and structural — to ensure sustainable and balanced growth.

“We believe in free trade,” Mnuchin told reporters after the G-20 meeting. But he also stressed the importance of “balanced” trade and said the United States wants to “re-examine” some trade deals.

Following their first one-on-one talks, Aso described Mnuchin as someone he finds “easy to work with,” noting that the former Wall Street banker is well-versed in monetary and financial matters.

Hideo Kumano, chief economist at the Dai-ichi Life Research Institute, said the G-20 agreement to “refrain from competitive devaluations” would make it difficult for the U.S. to step up criticism of Japan.

“What is important is to negotiate and take action under multilateral rather than bilateral frameworks,” Kumano said. “The G-20 needs to play a role in enabling international coordination.”

For now, the outcome of the G-20 and the Aso-Mnuchin meeting came as what one senior government official described as a relief to Tokyo.

But Japan may face real challenges when it grapples with the United States in economic dialogue.

“As seen in the communique, we can see the United States shifting its weight from where it used to be under Trump, who is putting ‘America First.’ It could be China, Germany or Japan that it will demand to change,” Kumano said.

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