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Japan conveys concern over one-sided currency moves to U.S.

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By Leika Kihara

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The world went on a grand experiment in the global currency system on August 15th, 1971 when President Nixon defaulted on the Bretton Woods agreement signed after WWII. The dollar was agreed to be the World's Reserve Currency after WWII, because they had the strongest economy, and they scared the daylights out of everyone by dropping nuclear bombs on Hiroshima and Nagasaki. But the most important factor, was that the US would back the dollar with gold, at the rate of $35 and ounce for any trade imbalances. So holding the dollar was as good as holding gold at that time. All other currencies were linked to the dollar, which was linked to gold. After Nixon broke that link, governments around the world were free to print as much paper currency as they wanted and go into unlimited debt, which in effect is borrowing from future earnings to fund the present. We now stand at an unprecedented $230 trillion in worldwide government debt. The US is the largest debtor nation in the history of the world. A benign sounding 2% inflation rate, compounded will wipe out the purchasing power if a person lives to an average of 75 years. Add to that, a negative interest rate, and you'll be lucky to buy a bento for lunch when you reach retirement age. The good news, is that every 70 years or so, we have a global monetary reset. That's where the world's reserve currency changes hands, because the current holder has reckless monetary policy, but even more, nobody wants to hold their debt because they print more paper to borrow more money just to pay the interest on that debt. It's already happened twice in recent history. Once before WWI, and again prior to WWII.

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"I also expressed deep concern over recent one-sided moves in the currency market,”

Why? Because it nullifies Japan's one-sided moves and that's not fair?

6 ( +10 / -4 )

Lots of Fed/Central Banker moves going on in the US and some unprecedented emergency meetings, especially between Yellen and Obama.

Could it be this?

Reuters reported that Deutsche Bank has also reached a settlement in US litigation alleging the bank conspired to fix gold prices. In other words, hours after admitting it was rigging the silver market, it did the same for gold.

but mostly this?

first settling a long-running silver price fixing lawsuit which in addition to "valuable monetary consideration" said it would expose the other banks' rigging having also "agreed to provide cooperation to plaintiffs, including the production of instant messages, and other electronic communications, as part of the settlement"

Looks like the snakes are starting to eat their tails.

Nice post Mike. Unfortunately, IMO, all one needs to do scream racist or socialist and BAM!, the knee-jerkers pounce while the some-ole one party apparatchiks get elected with "Hope and Change" ringing in their ears as they circle the toilet.

3 ( +6 / -3 )

Funny, Aso and Kuroda never complained about the one-sided moves in the yen when it was crashing 40 yen from 85 to 125. Apparently the yen is only supposed to get weaker or at worst remain stable, even though it has regained less than a third of the value that was lost since the introduction of Abenomics.

Kuroda making rates more negative won't achieve much. It's not like real interest rates are high in Japan to begin with. It'll only highlight further the disappointment that Abenomics has turned out to be.

What's holding investment back in Japan is other factors, and devaluing money isn't going to fix it.

6 ( +8 / -2 )

Japanese Finance Minister Taro Aso said on Thursday he had expressed deep concerns to U.S. Treasury Secretary Jack Lew over one-sided currency moves

This is an unwise move by a finance minister. What is Aso's plan if Lew gives disappointing reply? Aso is just making yen vulnerable.

1 ( +1 / -0 )

Aso and Kuroda never complained about the one-sided moves in the yen when it was crashing 40 yen from 85 to 125.

Japan never complained about the one-sided moves in the yen when it was rising 280 yen from 360 to 80, which means US treasury Japan hold disappeared

-8 ( +1 / -9 )

They were lucky to have it at 360 for all those years! The only reason it was initially set at that rate was that the kanji for yen also means circle. For many years America allowed Japan to enjoy the huge competitive advantage of an artificially weak exchange rate. Japan could hardly complain when this anomaly was finally rectified and the currency was allowed to find it's true value.

1 ( +4 / -3 )

Japan could hardly complain when this anomaly was finally rectified and the currency was allowed to find it's true value.

Isn't it ironic that governments are now pulling out all the stops to prevent their currencies from finding their true values. Governments want inflation, as it is an indirect tax, where the can get the value of our money without having to actually take our cash. I wish people understood that inflation is nothing but another form of tax, and I think we all pay enough tax already.

6 ( +6 / -0 )

When the yen was weaker but strengthening it was no big deal because Japan was a economic success back then. Now the politicians are useless and aren't managing the economy well, as a result the economy is crap, and rather than face this reality they want to destroy the currency out of a mistaken belief that doing so will make Japan great again.

It's not economic growth though, it is redistribution. Making some people richer by making others poorer (exporters versus the rest).

Japan needs a tide that lifts all boats, and that is economic growth, not redistribution.

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rather than face this reality they want to destroy the currency out of a mistaken belief that doing so will make Japan great again.

I don't think they are quite so stupid as they appear. They may mouth the words "make Japan great again" but behind closed doors they are saying "how are we going even going to begin to pay the pensions we have promised and cover all the public money invested in our bonds and the post office, not to mention healthcare?"

They want inflation, not to boost the economy, but too inflate away the government debt that they can't come close to paying otherwise. It's either inflation or default, and no politician is going to stand up and say "we can't pay, sorry." So it's inflation.

Unfortunately, that's the game plan of many western countries, including the US. Since the world has never seen a bout of almost all leading economies trying to destroy their currencies at the same time, the result will be interesting. But also very unpleasant most likely

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There is always two sides to a transaction.

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A strong Yen impacts tourism and exports negatively. Any direct intervention is bound to be received a manipulation. An early Christmas present for U.S. manufactured importers of goods ie, Beef, farm products etc

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Guess Washington is saying "Times Up". Abe's government had 3 yrs to fix economy....what happened to 3rd arrow?

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The TPP will get ratified soon and we'll lose billions in taxpayer money over the currency issue.

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Funny, Aso and Kuroda never complained about the one-sided moves in the yen when it was crashing 40 yen from 85 to 125. funny how the US wasnt complaining when the $ crashed to 85yen from $5trillion + in quantitive easing, no they can all cry foul of currency manipulation but that just makes the hypocrites

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wtfjapan

Funny, Aso and Kuroda never complained about the one-sided moves in the yen when it was crashing 40 yen from 85 to 125. funny how the US wasnt complaining when the $ crashed to 85yen from $5trillion + in quantitive easing, no they can all cry foul of currency manipulation but that just makes the hypocrites

This one gets very tiring after a while. The whole point of US QE was to ensure the domestic financial markets had access to credit, an indirect result was a weakening of the US dollar.

The whole point of Japanese QE, from it outset in the early 2000s, has been to manipulate the Japanese Yen into a position of weakness so that exports will make up for an ill domestic economy. QE to loosen up credit in the Japanese financial markets have never been an issue because the Japanese financial markets have been awash with credit since the Jusen banking crises of the late 1990s.

Japan has been playing the currency manipulation card since 1997, the US has not and the European Central Bank has just began to play the QE for currency manipulation. However, out of the G7 nations. Japan was and consistently is the major currency manipulator.

Enough is enough. Japan cannot continue to export its economic woes to other developed economies at the expense of jobs in those other developed economies. Japan has to bend over and take the pain of restructuring an economy that manufactures too much and consumes too little of what it manufactures.

-2 ( +2 / -4 )

The whole point of US QE was to ensure the domestic financial markets had access to credit, an indirect result was a weakening of the US dollar.

I'm no economist Gary, and I could be off base, but it seems to me you are letting the US off the hook WAY to easy. IMO, it wasn't just the domestic financial markets, but the global Central Banking system that the US, the ECB, etc were giving CPR to. Deutsche Bank has just admitted to minipulting the gold and silver markets. We know how much China and Japan buys our debt, but Saudi Arabia and the whole Petrodollar/treasury bond buying scheme is TOP SECRET, and they are threading to sell it off if a bill gets passed that would investigate 9/11 again.

I guess my point is, it's not just about QE with the US. We've been exporting our inflation just as much.

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FizzBitApr. 17, 2016 - 08:44AM JST

I'm no economist Gary, and I could be off base, but it seems to me you are letting the US off the hook

The simple fact is that Japan is a surplus account nation and the US is a deficit account nation. The natural laws of FX state that the currencies of surplus account economies should strengthen under natural conditions and deficit account nations should weaken until an equilibrium that corrects the trade imbalance is reached.

Of course natural conditions are rarely attainable and other variables such as technology, ownership of natural resources international desirability/confidence for certain currencies are also influential variables in a currency's worth.

However the value of the Yen is not being determined by these other variables but by Japan's constant desire to weaken its currency to grab more of the international market and protect its domestic market from international competitors.

Japan is not the only country to do this. It's not even the only developed to do it, Germany hides behind the Euro weakness to ensure it maintains its hold on its share of international markets.

However Japan's real fiscal problem, something Germany doesn't suffer from, is that the Japanese government spends too much money and spends that money on the wrong things.

Give a family a 3 bedroomed apartment with a living room, kitchen and lounge and the sales of aircons goes up between 200 - 400%, TV sales double at the least, PC sales in all likelihood will double etc etc.

Build another highway in Amori and the only long term benefactors are the bears rummaging between A to B for food.

The Japanese government is addicted to fiscal spending and the only way it can sustain that dependence is on Japan running a current account surplus, which protects the currency from international markets and brings more corporate taxes into the government's coffers.

The only way the current account surplus can be maintained is by weakening the Yen and beggaring thy neighbor. The Japanese primary motive of their QE policy was and is currency manipulation.

The US has different problems from Japan, government spending being one, but one that will not be a problem until the US Dollar loses its international status. US QE was never about weakening the dollar because weakening the dollar actually makes the US dollar's status as the international currency precarious.

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Gary,

Agree about Japan's problems %100.

but one that will not be a problem until the US Dollar loses its international status.

And there's the rub, IMO. Japan is a debt slave to themselves. However, the US is a debt slave to other nations, where, for example, even a search for a fuller truth about 9/11 by our elected officials is met with economic death threats by Saudi Arabia. Which position is worse to be in is a matter of opinion I guess.

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The whole point of US QE was to ensure the domestic financial markets had access to credit, an indirect result was a weakening of the US dollar. so who care if it was direct or indirect it still had the desired result at the time and that was to devalue the $ to make US exports more competitive. and it was this initial currency imbalance that started everybody else down the QE path, eg Japan EU etc. Japans QE is too spur inflation the INDIRECT result is a weaker currency. Japans currency certainly doesnt reflect the state of its economy and has more to do with speculative traders dumping cash into the yen whenever there are market jitters, something no currency desires and have every right to counteract if it is damaging there economy. currency manipulation isnt illegal and almost everybody does it. The US has no right to point fingers as it just makes them hypocrites

-1 ( +0 / -1 )

wtfjapan

The whole point of US QE was to ensure the domestic financial markets had access to credit, an indirect result was a weakening of the US dollar. so who care if it was direct or indirect it still had the desired result

You should understand the distinction between murder and manslaughter: it's intent.

wtfjapan

it was this initial currency imbalance that started everybody else down the QE path

No..... you should learn a bit of economic history about the times you live in. Japan started QE in 2002. The US first used QE in 2008. Again, for different motives. Japan's only motive was to weaken its currency. The US' motive was to not allow access the financial markets to die in a fiscal drought.

The Japanese financial markets in 2002 were awash with cash because the BOJ, in 1998, instead of nationalizing the banks, who were in a financial crises, decided to replenish them with taxpayers's money. It was a bit like deciding a cure for acne for a teenager, was more make-up.

Again the US motive for QE was to ensure that financial institutions in the USA had access to credit. Japanese banks haven't had that problem since 1998 yet Japan continues to implement QE. And pleeeeeaazzzeee don't say that other central banks are now doing the same as Japan.... yes they are..... but Japan started this currency war and still continues to fight it.... thus Aso, who is far from the sharpest knife in the kitchen drawer, and his comments.

wtfjapan

Japans QE is too spur inflation the INDIRECT result is a weaker currency.

As far as the LDP was concerned, it never was. It was the same old of the same old. Public expenditure enriching the economic elites who would donate to the LDP as a measure of their gratitude. An essentail part of that enrichment was a weak currency that allowed the 40% of the Japanese economy, yet who make-up 85% of the LDP's funds, to benefit... The 40% are the export orientated businesses and the constructoin industry.

As far as Kuroda is concerned, you are right. But intent doesn't make an effective leader and 3 years ago Kuroda was biting at the bit to take Shirakawa's job and show him what for. Shirakawa was a Japanese savvy guy, while Kuroda had spent so many years at the World Bank that he had forgotten what Japan was about... political interest's serving economic elite interests and vice versa. He was the henna nihonjin, ripe for the plucking and the LDP plucked him.

On April 28th this year, if Kuroda has any honor, which I still believe he does, he wil throw himself on his sword and resigh and accept that the QE he intended has failed and this has all been a lark for thr the LDP to keep Japan in the same box of 50 years ago.

wtfjapan

has more to do with speculative traders dumping cash into the yen whenever there are market jitters, something no currency desires and have every right to counteract if it is damaging there economy. currency manipulation isnt illegal and almost everybody does it. The US has no right to point fingers as it just makes them hypocrites

Nope.. Japan runs current account surpluses and therefore its currency should strengthen. That's the law of gravity, you might not like it, but the apple, no time, is heading to the clouds. Japan's currency to the dollar is undervalued by 15-20% and that has nothing to do with evil foreign speculators......... it's a fact

-2 ( +1 / -3 )

Gary

So just to be clear, when you say "access to credit", could you also say "bailing out the banks after having to pay out to the CDS speculators"?

You make it sound like all the banks in the US were having "access to credit" problems. Was that the case? Or are you talking about the TBTF banks?

0 ( +0 / -0 )

but the apple, no time, is heading to the clouds. Japan's currency to the dollar is undervalued by 15-20% and that has nothing to do with evil foreign speculators......... it's a fact actually the $ is expected to strength near the end of the year when interest rates are increased again (US fed has held off the increases to keep there currecny low another form of manipulation), but they cant do this forever as US inflation is hitting it target while Japans is nowhere near it. Nah Yen will weaken and itll be done either directly or INDIRECTLY. If everybody was so against it they would of made it illegal decades ago, instead they just frown upon it. Nobody wants to give up a tools to have some control on there currency. US has to come to terms with the fact that EU Japan China have the right to correct the currency imbalances that much of the time is caused by the US. The US like everybody want a robust economy with a low currency to keep them competitive and they expect every other country to pay for it, either through cheap Chinese/Japanese credit (which they struggle to pay the interest on) increased tarriffs on imported goods (you can see that happening now) and the manipulation of it own currency without foreign currency retaliation.

-1 ( +0 / -1 )

I don't really care about the politics of this particular issue, I just want both the Chinese and Japanese currencies to be of such value that it's "good for their exports" - simply because all of my electronics (android game handhelds, cables, micro sd cards, usb sticks, sd readers, screen protectors, game controllers, you name it) and all my cosplay costumes come from China, whereas my otaku hobby/obsession means that "strong Japanese exports" make all the tons of merchandise, my crunchyroll account etc. cheaper. :3

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