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Editorial: Trump’s allegations of yen manipulation threaten global stability

On the heels of his criticism of Japanese policy on auto trade with the U.S. as being “unfair,” U.S. President Donald Trump has attacked Japan’s exchange rate policy. The verbal intervention of the leader of a superpower that holds a key currency could have negative impacts not only on bilateral trade, but on the foundations of international cooperation regarding economic policy.


Trump’s take on the “facts” is far-fetched.


First, if his criticism is directed toward yen-selling intervention, he is simply mistaken. Since 2011 — when the Great East Japan Earthquake and tsunami hit, setting off a nuclear disaster — and the yen surged, Japan has not intervened in yen devaluation. To criticize Japan for allegedly devaluing its currency alongside China, which has manipulated its currency regularly, is off the mark.


What’s even more problematic about Trump’s criticism is that it may have been targeted at the monetary easing policy of the Bank of Japan (BOJ). If that is indeed the case, he is completely ignoring an international agreement that recognizes and approves domestic monetary easing as a way of stabilizing an economy.


That is not to say, however, that the administration of Prime Minister Shinzo Abe is without fault. Abe’s economic policy mix, dubbed “Abenomics,” with the BOJ’s monetary easing as one of its main pillars, aspires to pull Japan out of deflation. The hope is that yen devaluation resulting from monetary easing would improve corporate performance, raise wages, and galvanize consumption. However, more than four years after the relaunch of the Abe administration in December 2012, Japan has continued to rely on the weak yen, and has been unable to enter a cycle of significant positive developments.


In response to Trump’s criticism, Japan’s Chief Cabinet Secretary Yoshihide Suga told a press conference, “Japan’s monetary easing is for price stabilization, so (U.S. President Trump’s) criticism does not apply.” Still, that’s not something the Japanese government should be tooting its own horn over.


The fact remains, however, that Trump’s verbal intervention could possibly throw off the balance between individual countries’ economic policies and international collaboration. His criticisms are unilateral and ignore a shared understanding that has been built up internationally over the years.


At Finance Ministers and Central Bank Governors Meetings of 20 major and emerging economies, or G-20, in which the U.S. participates, there have been repeated debates on maintaining integrity between domestic policies and international cooperation. The G-20 has confirmed that party states must avoid competitive devaluation, because if countries were to rush to devalue currencies in ways that would be advantageous to them, protectionism would go unchecked. Meanwhile, the G-20 has allowed for currency devaluation that occurs as a result of monetary easing instituted for the purpose of breaking away from deflation and other circumstances, because it determined that the economic stability of individual countries benefits the world economy.


The U.S., too, instituted massive monetary easing after the collapse of Lehman Brothers. There were times when the dollar dipped against the yen, but the U.S. economy recovered. The recent trend toward a weak yen and a strong dollar is a result of that economic recovery.


What’s more, Trump’s policies are applying dollar-buying pressure, because of high expectations toward the U.S. economy due to Trump’s promises to lower taxes and invest in infrastructure. Trump is barking up the wrong tree by attacking Japan.


Trump, who has upheld the slogan “America First” since his election campaign, has pushed protectionist policies to the fore. When the leader of a country with a key currency spews rhetoric that is only convenient to him, there’s a risk of destabilizing markets and causing adverse effects on the world economy.


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