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A recent U.S. Treasury Department report on foreign exchange policies of America’s major trading partners — which named Japan along with China and others on the list of economies whose currency policy practices need close monitoring — should serve as a reminder that relying on the weak yen to bolster the profits of Japanese firms and drive its economy may not only be unsustainable for much longer but can also be harmful in the long run.

Whether Japan’s currency practices indeed deserve to be on the U.S. government’s watch list might need to be weighed against the political factors behind the report, issued at the end of last month as the campaign heats up for November’s presidential election, where trade hawks tend to appeal to American voters, and as President Barack Obama needs to win the cooperation of the Republican-controlled Congress on sensitive policy issues in his final year in office. But the report comes as yet another signal that Washington appears increasingly intolerant of the yen’s weakness against the dollar under Prime Minister Shinzo Abe’s watch.

Whether it was intended as such, it is undeniable that the “unprecedented” monetary easing by the Bank of Japan since 2013 — touted as the “first arrow” of Abenomics — drove the yen’s value down against other major currencies, pushed up the profits of major Japanese businesses to record levels by inflating their export earnings in yen terms, and led to a surge in share prices on the Tokyo market. And as the BOJ’s monetary stimulus program entered its fourth year and the central bank even tested the negative interest rate policy, the yen has been facing steep upward pressure since January, clouding the earnings prospect of the big firms — already thrown in doubt by growing uncertainties over global growth — and pushing down the stock market.

Japanese and U.S. financial authorities have in recent weeks exposed what appears to be a widening gap in their assessment of the conditions facing the foreign exchange market. When the Group of 20’s finance chiefs and central bankers gathered in Washington in mid-April, Finance Minister Taro Aso said he re-confirmed with his counterparts that disorderly currency movements are not desirable. But U.S. Treasury Secretary Jack Lew was quick to call the foreign exchange market moves “orderly” and urged Japan to focus on boosting domestic demand in what was taken as a warning from Washington that market intervention to correct the yen’s rise was not warranted.

The U.S. position was repeated in the semiannual report released April 30. It said the recent movement of the yen-dollar exchange rate — which Tokyo has decried as “clearly one-sided” and “speculative” — remained orderly and urged Japan to explore all policy options, including fiscal policy and structural reforms. It is important for countries to keep their Group of Seven and G-20 commitments to refrain from weakening their currencies to gain the edge over others, the report said. Aso emphasized that the U.S. report does not tie Japan’s hands in its response to currency exchange movements, of which the finance minister said Tokyo is “extremely concerned” and against which it will take action as deemed necessary.

Aso’s remarks apparently did not prevent market participants from interpreting the U.S. report as a sign that Washington would not tolerate currency intervention by Tokyo to stem the yen’s rise — and that it would be difficult for Japan to intervene. On Monday, the yen rose to a 1½-year high of 106.14 to the dollar and, along with the disappointment over the BOJ’s lack of additional easing measures last week, pushed down the Nikkei average to its fifth consecutive trading day of decline — a losing streak that continued through Friday.

Japan was put on the U.S. Treasury watch list along with China, Germany, South Korea and Taiwan — based on the criteria such as the size of their trade surplus with the United States. Potential penalties for economies labeled as currency manipulators will reportedly include exclusion of their businesses from U.S. government contracts.

The potential impact of the U.S. move aside, Japan, its businesses and financial markets should take it as a cue to rethink whether the reliance on the weak yen to support corporate earnings and drive the economy is sustainable. That the reversal of the yen’s fall against the dollar in recent month has been raising serious doubts about the economy’s prospects is proof that other components of Abenomics — in particular the structural reforms long pledged by Abe — have come up short.

A weak yen is no panacea for Japan’s economic problems. It boosts the earnings of globally operating major firms and has been the key pillar of the stock market surge since Abe returned to the helm of government. But the increase in profits aided by the weak yen can allow the companies to shelve efforts to get more competitive by developing new products, services and technologies. It may provide less incentive for the economy to become more efficient through structural reforms that shed off less competitive sectors. A weak currency meanwhile increases the cost of imports such as energy and raw materials, placing a heavier burden on businesses and consumers alike. With or without the warning from the U.S., it’s time to think again whether we should pin our hopes on the weakening of our currency.

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