The US Department of the Treasury has added Japan to its “Monitoring List” for currency manipulation, placing it alongside China (Communist Party), though for different reasons.
Other countries and regions on the “Monitoring List” include Germany, Malaysia, Singapore, Taiwan, and Vietnam. In comparison with the previous report from November 2023, apart from Japan, the other countries and regions have remained on the “Monitoring List”.
According to the semi-annual foreign exchange report released by the US Treasury on Thursday (June 20), the expectation is that “intervention in the large, freely traded foreign exchange markets should occur only in exceptional circumstances and be preannounced.”
The report stated that Japan is “transparent” in its foreign exchange operations, but it was added to the monitoring list by the US due to its interventions in the yen earlier this year, along with significant bilateral trade and current account surpluses.
The US domestic interest rates being at the highest levels in over 20 years have led to the US dollar remaining strong against most other currencies. This, in turn, has caused significant pressure on major importers of commodities priced in US dollars and countries holding debts denominated in US dollars.
Under this pressure, some governments have taken action by intervening in the foreign exchange markets to boost their currencies against the US dollar. These measures are generally aimed at strengthening their currencies against the US dollar rather than weakening them to enhance export competitiveness.
Earlier this year, after the yen fell to its lowest level against the US dollar in 34 years, the Bank of Japan injected a record $62 billion (9.8 trillion yen) to support the yen. This amount exceeded the total spent by Japan in 2022 to defend the value of the yen. The significant interest rate differential between Japan and the US continues to weigh on the yen.
Regarding China in the report, the US Treasury once again called on Beijing to increase transparency in its exchange rate policy and highlighted its trade surplus with the US. It also noted abnormalities in China’s current account data.
“China (Communist Party) has failed to disclose its foreign exchange intervention activities, and its main exchange rate policies lack transparency, making China an anomaly among major economies, warranting close attention from the US Treasury Department,” the report said.
The Treasury Department did not announce any trading partner as a currency manipulator on Thursday. The semi-annual report is aimed at pressuring trading partners considered to artificially lower their currencies to gain a competitive advantage.
Bloomberg stated that being labelled as a currency manipulator by the US would not have specific or direct consequences, but US law requires the government to work with these trading partners to address clear currency imbalances. If the manipulation label persists, trading partners could face penalties with the US government, including the cancellation of contracts.
The last time the US Treasury designated China (Communist Party) as a currency manipulator was in 2019. Five months later, the US removed the manipulator label from China to create negotiating space in the US-China trade agreement.