The US Department of the Treasury said it would press Japan to refrain from competitive devaluation, while stopping short of accusing it of manipulating the yen in a report on exchange rates.
The Treasury is to pressure Japan to adhere to international commitments “to remain oriented towards meeting respective domestic objectives using domestic instruments and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes,” the department said in its semi-annual currency report to the US Congress released in Washington on Friday.
The report also declined to name China a currency manipulator.
“This is a shot across the Bank of Japan’s bow,” Kit Juckes, a global strategist at Societe Generale SA in London, said in an e-mail. “Everyone still supports Japan’s fight against deflation, but the US would much rather the yen did not weaken significantly further.”
The Bank of Japan surprised markets on Thursday last week by doubling monthly bond purchases to almost match the US Federal Reserve’s monetary easing, and by setting a two-year horizon for achieving its goal of 2 percent inflation.
Bank of Japan Governor Haruhiko Kuroda said there is no time limit to the stimulus.
The yen has depreciated against all 16 of its most-traded peers since Thursday last week, declining 2.2 percent to the US dollar, 3.5 percent to Europe’s 17-nation common currency and 2.8 percent to Australia’s dollar.
“Yen moves have been too rapid for the US to applaud Japan’s battle to end deflation,” said Yasuhide Yajima, chief economist at NLI Research Institute Ltd in Tokyo, an affiliate of Nippon Life Insurance Co, Japan’s biggest life insurer. “Japan will have to show fiscal plans and means to strengthen growth to make it clear it’s not depending only on weakening the yen to revive the economy.”
Juckes said until recently, the US had been supportive of Japan’s policies.
“How could they not be after years of calling for them to combat deflation?” Juckes said. “Now, with the yen falling so far, so fast, the Treasury has changed its tune.”
The US would be “watching to make sure that the focus of Abenomics is on stimulating the domestic Japanese economy and not its external sector,” Truman said, referring to the policies of Japanese Prime Minister Shinzo Abe.
In the report, the Treasury declined to name China a manipulator, while saying that the yuan “remains significantly undervalued.”
“Intervention appears to have resumed, and further appreciation of the RMB against the dollar is warranted,” the Treasury said, using another term for the Chinese currency.
The Treasury said it would press China for policy changes and greater exchange-rate flexibility.
“The Obama administration’s “refusal to label China a currency manipulator once again demonstrates President Obama’s deep-seated indifference to a major, ongoing threat to American manufacturing’s competitiveness, and to the US economy’s return to genuine health,” Alan Tonelson, research fellow at the US Business and Industry Council, which represents about 2,000 domestic manufacturers, said in a statement.
US Secretary of the Treasury Jack Lew traveled to China last month and said he pressed the country’s new leadership on the exchange rate.
A market-determined yuan is in China’s interest, and “they recognize the need to do it for internal reasons as well,” Lew said during his two-day visit.