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.
Key Quotes
“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.”
