WASHINGTON – The Treasury Department said Friday it has retained Japan, China and four other nations on a list of countries it monitors over potentially “unfair” currency practices.
The department, however, concluded that no major U.S. trading partner is manipulating its currency to gain an unfair trade advantage, suggesting that President Donald Trump has backed away from his campaign pledge to label China a currency manipulator.
In a semiannual report to Congress, the department kept Japan, China, South Korea, Taiwan, Germany and Switzerland on the “monitoring list,” saying the six nations warrant “close attention to their currency practices.”
Although the yen rose 6.3 percent versus the dollar last year and 1.0 percent in the first two months of this year, the report referred to the weakness of the currency. “There is little evidence that the yen is overvalued,” it said. “The real effective yen is 20 percent weaker than its 20-year historical average.”
Such a reference and Trump’s remark Wednesday that the dollar “is getting too strong” indicate the United States may push Japan to address a strong dollar and trade imbalances during a high-level bilateral economic dialogue to be held Tuesday in Tokyo and a meeting of the finance ministers of the two countries in Washington the same week.
The department said Japan has not intervened in the foreign exchange market in over five years, but that intervention “should be reserved only to very exceptional circumstances with appropriate prior consultations, consistent with Japan’s G-7 and G-20 commitments.” The G-7 and G-20 refer to the Group of Seven industrialized nations and the Group of 20 developed and emerging economies.
“An essential component of this administration’s strategy is to ensure that American workers and companies face a level playing field when competing internationally,” Treasury Secretary Steven Mnuchin said in a statement.
According to the report, the department is “concerned by the persistence of the large bilateral trade imbalance between the United States and Japan,” in reference to Tokyo’s hefty trade surplus with Washington.
The department is also concerned by China’s “lack of progress” in reducing its massive trade surplus with the United States.
“Further opening of the Chinese economy to U.S. goods and services, as well as faster implementation of reforms to rebalance the Chinese economy toward greater household consumption would aid in reducing the bilateral imbalance,” the report said.
The department urged Beijing to “make further efforts to clarify its exchange rate and reserve management operations and goals,” and to “underscore that devaluation will not be used to support domestic growth.”
“China will need to demonstrate that its lack of intervention to resist appreciation over the last three years represents a durable policy shift by letting the RMB rise with market forces once appreciation pressures resume,” it said, in reference to the renminbi (yuan).
The department also expressed concern about the size of the trade surpluses of Germany and South Korea with the United States, and urged Germany, which uses the euro and does not have authority over the currency, to appreciate its “low real effective exchange rate.”
It also asked South Korea to “enhance the flexibility of the exchange rate,” citing an International Monetary Fund’s assessment that the won is undervalued.
Referring to the dollar’s recent movements, the report said it had strengthened against most major and emerging market currencies in the second half of last year, and that the majority of its appreciation occurred following Trump’s victory in November’s presidential election.