U.S. keeps Japan, China on Forex monitoring list

May 29, 2019

Washington--The U.S. Treasury Department said in a semiannual report Tuesday that it has kept Japan and China, both running major trade surpluses with the United States, on its "Monitoring List" over their foreign exchange policies.

With the designation, the U.S. government, under President Donald Trump's policy to place emphasis on reducing trade imbalances, aims to add pressure on Japan in their bilateral trade negotiations so as to prevent Tokyo from guiding the yen lower, pundits said.

Washington also aims to send a warning to China over the country's devaluation of its currency, the yuan.

Other major trading partners of the United States that stayed on the monitoring list were South Korea and Germany. Malaysia, Singapore, Vietnam, Ireland and Italy were newly added to the list.

The number of economies surveyed in the latest report increased to 21 from 12, with the addition of some Southeast Asian and European countries.

The department concluded that no major trading partners of the United States met the standard for currency manipulation.

The report assessed currency policies based on three criteria--significant bilateral trade surplus with the United States, material current account surplus and persistent, one-sided intervention in foreign exchange markets.

If an economy meets all of the three criteria, the United States designates it as a currency manipulator so that it can consider sanctions or other countermeasures.

Beginning with the latest report, the department changed some of the designation standards so that it can give currency manipulation designation more easily.

On Japan, the report said, "Over the last five years, the yen has been relatively stable on a real effective basis near historically weak levels."

The report also said, "Treasury's expectation is that in large, freely-traded exchange markets, intervention should be reserved only for very exceptional circumstances with appropriate prior consultations."

As for China, the report explained that the yuan has fallen against the dollar by 8 pct over the last year.

"Treasury continues to urge China to take the necessary steps to avoid a persistently weak currency," the report added.

The United States aims to include in an envisaged bilateral trade agreement with Japan a provision aimed at preventing Tokyo from guiding the exchange rates of the yen lower against the dollar.

The department was to publish the latest report in mid-April.

Although Trump and Japanese Prime Minister Shinzo Abe highlighted a favorable bilateral relationship at their summit held in Tokyo on Monday, the U.S. government apparently showed its tough stance on currency issues by releasing the report soon after the summit, pundits said. Jiji Press