Foreign exchange rates are determined through free trading in the market, on the basis of countries’ fundamental economic conditions. Doesn’t he understand this at all?
U.S. President Donald Trump said at a meeting with business executives: “Every other country lives on devaluation. You look at what Japan has done over the years.” It was the first time since he took office that Trump has criticized Japan by name over its foreign exchange policy.
Following these remarks by Trump, yen-buying and dollar-selling movements on the exchange market accelerated, sending the yen to its highest level in two months against the dollar.
The U.S. auto industry and other sectors claim that their entry into the Japanese market has not progressed as they hoped, which they say is due to Japan’s guiding the yen lower against the dollar.
Trump’s criticism of the yen’s weakness is believed to reflect these assertions. It can also be construed as Washington making preparations to exert pressure on Japan at the Japan-U.S. bilateral talks slated for Feb. 10, which will focus on trade issues.
Trump’s view that Japan’s foreign exchange policy is aimed at guiding the yen lower against the dollar contradicts the facts. It is reasonable that Chief Cabinet Secretary Yoshihide Suga refuted it clearly, saying that Trump’s “criticism is completely off the mark.”
The last time Japan made a yen-selling intervention in the market with the intention of checking the yen’s rise was back in the autumn of 2011. Japan has not taken such action since then.
Japan’s market interventions in past years were conducted as measures to reduce the impact of wild fluctuations in the exchange rate on the economy. They were not intended to guide the value of the yen to a certain level against other currencies.
Recognize weight of words
Trump also made reference to the “money supply.” Some have pointed out that Trump might direct the brunt of his criticism at the Bank of Japan.
The bold monetary easing policies implemented continuously by the Bank of Japan are aimed at steadily getting the nation out of deflation. The criticism that the central bank is guiding the yen lower is unreasonable.
In the first place, the current strength of the dollar, which Trump considers problematic, has much to do with the economic circumstances of the United States.
The U.S. monetary authority implemented phased hikes of interest rates in step with the economic recovery, widening the Japan-U.S. interest rate gap further. This is a factor contributing to the decline in the yen’s value against the dollar.
Expectations for a huge fiscal stimulus, which Trump himself advocates, have also brought about the rise in U.S. interest rates, leading to upward pressure on the value of the dollar.
Trump’s way of doing things is perilous: turning his head away from facts that do not line up with his own opinions, and menacing the other side with one-sided arguments.
As long as the president of the United States, whose dollar is the world’s key currency, carelessly makes verbal interventions to rock the foreign exchange market, it will have an adverse impact on the global economy.
At the summit meeting of the Group of Seven major countries (the Ise-Shima summit) last year, the leaders of the countries, including the United States, shared the concern that excessive fluctuations and disorderly movements in the exchange market may have adverse effects on the stability of the world economy.
A country must not use its foreign exchange policy as a bargaining chip to proceed with trade negotiations to its own advantage. Trump should fully recognize the gravity of his own remarks.