U.S. President Donald Trump, who has harshly criticized America’s key trading partners over trade issues, has also taken aim at the currency policies of some major economic powers.
Naming Japan along with China, Trump reportedly said, “They play the money market, they play the devaluation market, and we sit there like a bunch of dummies.”
If he was saying that Japan and China have been intervening in the foreign exchange markets to weaken their currencies, he clearly mistook the facts.
Japan has not taken such action since 2011, while China has recently been trying to prop up the sagging yuan, instead of guiding the currency lower.
Since he was referring to the money supply, Trump may have been taking a swipe at the Bank of Japan’s quantitative easing policy to increase the domestic money supply.
Responding quickly to Trump’s criticism, the Japanese government said Japan’s monetary policy is aimed at realizing the domestic policy goal of ending deflation and not designed to affect exchange rates at all.
The government’s explanation about the aim of the BOJ’s monetary policy is correct.
It is, however, a fact that the central bank’s radical monetary easing has led to the weakening of the yen against other major currencies, benefiting the Japanese economy.
In particular, it has been pointed out that the kind of aggressive monetary expansion the BOJ has carried out through its extraordinary policy program to inject massive liquidity into the economic system could cause friction with other countries.
The Japanese government needs to carefully continue explaining the facts to help the Trump administration have an accurate understanding of the policy.
Japan’s case for the policy should be based on past international agreements.
Major industrial nations including Japan and the United States have had a series of discussions on the question of how to strike a good balance between domestic policies and international cooperation.
During last year’s summit of the Group of Seven major industrial nations, the leaders confirmed that the countries should make effective policy efforts to revitalize their economic growth. They also agreed that the central banks should tackle the challenge of overcoming the problem of excessively low inflation.
The G-7 summit also committed the countries to avoiding a pursuit of specific exchange rate targets or competitive devaluation of their currencies.
It has been recognized that such frameworks of international agreements serve the interests of the countries. Under these agreements, not only Japan, but also Europe and the United States, have adopted unconventional monetary policies.
Immediately after the 2008 collapse of U.S. investment bank Lehman Brothers, which triggered a global recession, the United States led the way in monetary easing, causing the yen to strengthen sharply.
While there are problems with the BOJ’s policy, the United States has no right to criticize Japan in such a unilateral manner.
Trump should respect past international agreements in discussing these kinds of issues.
The current framework may not be the best one, of course. Any proposal that can further advance the interests of the countries involved would be welcomed.
But Trump is showing no interest in making such a proposal.
The dollar’s recent rise against other major currencies that started late last year has been caused mainly by Trump’s promises to cut taxes and ramp up infrastructure investment.
Despite this fact, the Trump administration has indicated its intention to negotiate an agreement on exchange rates during its bilateral trade talks with trading partners. The administration also seems to be directing its criticism at Germany as well because of a weak euro.
If the U.S. administration continues behaving this way, international economic relations could go astray.
Trump should realize that such a situation would also harm the interests of the United States.