US Warns Japan Not to Devalue the Yen – MUFG
Lee Hardman, Currency Analyst at MUFG, notes that the yen has derived
support as well from reports over the weekend that the US has warned
Japan not to devalue following meetings late last week in Washington.
“US Treasury Secretary Lew stated that despite the recent appreciation of the yen, foreign exchange markets remained “orderly” and that all countries needed to abide by their G7 and G20 commitments on currency policies.
More specifically he warned that “the fact Japan has reiterated those commitments is significant” in which they recently agreed at the G20 meeting to refrain from competitive currency policies or competitive devaluation, to communicate with each other so there are no surprises and to refrain from exchange rate targeting in our policies”.
The warning from the US is in response to increasing concern shown amongst Japanese policymakers over the recent strengthening of the yen. Japanese Finance Minister Aso reportedly told US Treasury Secretary Lew that “extreme and disorderly movements in the foreign exchange market have a negative effect on the economy, and I am gravely concerned by recent one-sided moves”. It follows comments from BoJ Governor Kuroda late last week as well describing recent yen moves as “excessive” which has corrected only “a little”.
With the US showing clear opposition, the likelihood of direct intervention to weaken the yen remains low in the near-term. It will keep pressure on Japanese policymakers to implement more aggressive fiscal and monetary easing to help combat building downside risks to the Japanese economy from the stronger yen. In addition, Prime Minister Abe has hinted that they “will take all necessary measures” in response to an opposition lawmaker’s proposal that the government should consider an extra budget amongst disaster relief in response to the earthquakes which have hit southern Japan.”