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Editorial: President Trump’s “verbal intervention” causing confusion in economy

U.S. President Donald Trump is pinpointing Japan as well as China, and criticizing Japan by saying it “has been devaluing its currency for many years.”

 

Over the past five years, Japan has never intervened in foreign currency markets. Apparently, Trump misunderstood the facts. If a U.S. president talks about the currency issue carelessly, confusion will spread throughout the financial market and the economy. He should seriously refrain from such “verbal intervention.”

 

Its hard to tell why he made such a remark, but it can be said that he was displaying his displeasure over the strengthening of the dollar since last autumn.

 

But what he needs to understand first is that the improvement of the U.S. economy is a key factor behind the strong dollar. The Federal Reserve raised its interest rate because the nation’s economy is growing stronger. As a result, the U.S. is raising its profile as an attractive destination for investment and the dollar is in higher demand.

 

Once the new U.S. administration introduces fiscal stimulus measures, such as tax reductions and more investment in infrastructure projects, these moves will gain momentum. Because they will encourage the Fed to raise the interest rate further.

 

It has also been said that Trump’s remark was targeting Japan’s monetary easing. It is true that the Bank of Japan’s easy money policy is helping to keep the yen down amid the U.S. interest rate hike. But the BOJ, just like its counterparts in the U.S. and Europe, is tasked with adopting policies that help keep the nation’s economy and prices stable. So his criticism is off the mark.

 

If the U.S. president, who has strong authority, comments on currency markets and monetary policy without much thought, the outlook for the financial market will inevitably grow dim. If currency markets are swayed by the words and deeds of politicians, corporate investment activities will be adversely affected. Those who oversee  macro-economic policy, such as the Treasury secretary,  should be entrusted with making comments on issues concerning currency exchange.

 

Trump’s remark on currency policy mirrors his determination to resort to protectionism steps, including higher tariffs, when needed. At the root of this is his mistaken belief that the trade surpluses that Japan and China have against the U.S. are taking jobs away from the U.S. The U.S. job market will not be improved by simply making bilateral trade account balances equal by all means. This may push up the prices of imported goods and put a strain on households.

 

When he meets with Prime Minister Abe next week, Trump will likely propose that the U.S. and Japan engage in bilateral trade negotiations to address trade imbalances. What is important is not to achieve balance in trade, but to expand two-way trade and investment in both countries. Although it is important to strengthen the Japan-U.S. relationship, it is even more important for Japan to make efforts at the meeting to ensure that the U.S. understands these principles.

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