The US government had not spoken to Japan about including provisions in free trade agreements to deter currency manipulation, Japanese Finance Minister Taro Aso said yesterday, although the two sides are likely to enter talks sometime next year.
Aso’s comments come after US Treasury Secretary Steven Mnuchin said on Saturday that Washington wants to include such provisions in future trade deals, including the one it will negotiate with Japan.
The new provisions would be based on the currency chapter in Washington’s new deal to revamp its trade pact with Canada and Mexico, which urges members to refrain from competitive devaluation.
Mnuchin’s remarks have raised concerns that the Japanese government’s efforts to keep currency policy separate from free trade talks are not working, and that it could be dragged into a dispute with Washington about the yen’s valuation.
“The US side has not brought up the issue of currencies since we agreed in February last year that these matters would be discussed between Mnuchin and myself,” Aso said.
“Our basic position is talks with the US Trade Representative don’t include currencies,” he told reporters.
Aso said Japan and the United States agreed in February last year that any issues related to currency policy would be discussed between him and Mnuchin, keeping them separate from talks on trade.
In a bid to jolt its economy out of years of deflation and slow growth, Japan embarked on a ultra-easy monetary stimulus in 2013, which also led to a sharp depreciation of the yen, benefiting its exporters.
Currency matters remain a sensitive topic for Japan because even moderate yen appreciation can have a major negative impact on export earnings and tends to hurt corporate sentiment.
Japanese policymakers say a currency chapter similar to the one Washington signed with Mexico and Canada won’t bind Tokyo beyond guidelines by the International Monetary Fund to refrain from competitive devaluations.
Pressure from the US administration to include such a chapter could create a challenge for Prime Minister Shinzo Abe’s reflationist policy, which has rested on a weak yen and aggressive monetary easing.
“The weak yen, and the BoJ’s aggressive monetary easing that caused it, has been the corner stone of Abenomics,” Hiroshi Shiraishi, senior economist at BNP Paribas Securities, said, referring to Abe’s economic policies.
“If that is challenged, that basically means Abenomics will be challenged and things could go in reverse.” Chief Cabinet Secretary Yoshihide Suga, the Japanese government’s top spokesman, did not directly answer questions by reporters yesterday about currency provisions.
When asked if Japan would reject such provisions in trade talks with the United States, Suga said Tokyo’s position was the same as it always has been but did not elaborate. Mnuchin has expressed concern about avoiding competitive currency devaluation, whereby a country artificially weakens its currency to make its exports more competitive.
US President Donald Trump is pushing to re-write trade relationships to lower the US trade deficit and change conditions he considers unfair to US workers and companies.
His administration has engaged in a tit-for-tat tariff war with China and wants to make currencies a part of any solution to its trade dispute with China.
The United States recently renegotiated the Nafta trade pact with Mexico and Canada. It has also agreed with Tokyo to enter negotiations for a trade deal that could potentially limit Japanese auto exports to the US market.
Group of 20 countries, including China and Japan, have in principle agreed with IMF guidelines that competitive currency devaluation should be avoided.
But there has been disagreement over what constitutes a currency decline designed to boost exports and one designed to stabilise markets.
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