There is need for Japan to be cautious in relation to the recent remarks made by United States President Donald Trump about currencies and there could be requirement for Tokyo to convince Washington that the aim of monetary easing in Japan is to fight deflation and not to further weaken the yen against the dollar, said a Japan finance ministry official to the media in Buenos Aries.
Following the comments by Trump about the strength of the US dollar and his jibe against the interest rate rise policy of the Federal Reserve, there was a fall in the U.S. dollar to its lowest in three weeks against six other global currencies on Friday.
While accusing the European Union and China of manipulating their currencies, Trump also lamented on the strength of the dollar against other currencies which was increasing the price of American exports.
But Treasury Secretary Steven Mnuchin has said that currency markets were not being attempted to be influenced by Trump and has reiterated that a strong U.S. economy is reflected by the strength in the U.S. dollar and it is in the long-term interest of the United States’.
“This time, the targets are China and the European Central Bank. But the content of criticism is the same so we need to be careful,” the Japanese official told reporters on the sidelines of a G20 meeting in the Argentine capital.
“If necessary, we may need to remind the United States about our past discussions on monetary policy” that is not targeting currencies but domestic policy objectives, he added.
In order to get to its eluding 2 per cent inflation rate target, aggressive monetary policy is being followed by the bank of Japan. There has not been very limited acceleration in inflation rates in Japan despite its central bank printing money massively during the last five years. At the same., there has been a steady weakening of the yen.
This is what can be used by critics to identify Japan as a currency manipulator and the country’s monetary policy is in the list that the US Treasury is monitoring.
However, for the US, the primary target is China because the “bulk of the U.S. trade deficit” is accounted for by Beijingm said Japanese Finance Minister Taro Aso.
Japan’s concerns over currency volatility has bene fueled by the rising trade tension. The trade spat can lead to an increase in the yen which is considered to be a safe haven for investors. If that happens it would be damaging for Japan whose economy is export dependent.
Aso stressed on the role and importance of free trade and global growth through it and said that pursuance of an inward-looking and protectionist policies would help no country.
“Excessive current account imbalances should be resolved through multilateral, not bilateral, framework,” Aso added.
“The matter should be dealt with through macroeconomic policy and structural reform by rebalancing savings and investments, instead of imposing tariffs.”
(Adapted from CNBC.com)