Abe to beat back Trump's charges of currency manipulation

Tokyo

JAPAN has begun mounting a simultaneous defence of its currency and foreign-trade policies in the face of an onslaught on both fronts by US president Donald Trump, with the counter-attack being led by Prime Minister Shinzo Abe.

The Japanese leader, with his finance minister Taro Aso, heads to Washington next week to explain Japan's stance on currency and monetary policies to the newly-installed US president.

Mr Abe and his senior officials will also seek to defend their trade policies. The confrontation over currency and trade comes at an awkward time for Mr Abe, who wants to impress upon Mr Trump that US leadership and presence are especially needed in the Asia-Pacific.

Newly appointed US Secretary of Defence James Mattis is to visit Japan this week. Meanwhile, the charge by Mr Trump and his trade advisor Peter Navarro that Japan, China and Germany are in effect using the devaluation of their currencies to gain trade advantage appears to have created widespread alarm in foreign-exchange markets.

A wide range of Asian currencies, from the Japanese yen and the South Korean won to the Thai baht and the Indian rupee, have all gained in price this week as investors fear that these and others could become targets of Mr Trump's ire, analysts said.

Tim Condon, head of Asia research for the ING financial group, said in a report: "We expect the US to start playing the devaluation game and its trade negotiators to cite large bilateral trade surpluses with the US as grounds for China, Japan and Korea to appreciate their currencies."

Mr Abe on Wednesday rejected the idea that the ultra-loose monetary policy of the Bank of Japan (BOJ) has been aimed at depreciating the yen. He told parliament: "Criticism that the BOJ's policy is trying to devalue the yen is wrong."

He echoed BOJ governor Haruhiko Kuroda, who had said on Tuesday that Japan's monetary policy has been implemented "solely for the purpose of achieving our price target at the earliest date possible. We do not directly target currency rates in guiding monetary policy".

The refrain was taken up on Wednesday by Chief Cabinet Secretary Yoshihide Suga, who denied that Tokyo intervenes in the foreign-exchange market; he added that the country's monetary policy is based on G7 and G20 agreements on the non-manipulation of currency.

Mr Suga rejected Mr Trump's accusations as "completely baseless". The US leader had, during a Tuesday meeting with pharmaceutical executives in New York, accused Japan and China of playing the devaluation market in recent years, Kyodo News reported.

The US president's remarks prompted the yen to jump to around 112 yen against the US dollar in Tokyo markets on Wednesday - a two-month high, although the currency eased back a little before the close of trading.

Masatsugu Asakawa, the vice-finance minister for international affairs, meanwhile also made a point raised several times by BOJ chief Kuroda - that the country's monetary policy is aimed at achieving the domestic goal of ending deflation, and is not aimed at currency rates.

Mr Asakawa will be in Washington to make arrangements with the US authorities ahead of the Feb 10 Trump-Abe meeting, said Japanese government sources. Harumi Taguchi, principal economist at IHS Markit in Tokyo, told Reuters that Mr Trump's policy moves have raised concerns, particularly for Japan whenever he mentions the currency rate.

Steven Mnuchin, Mr Trump's nominee as head of the US Treasury yet to be confirmed by Congress, is viewed as a potentially calming influence in the flare-up over allegations of currency manipulation. But the verbal interventions by Mr Trump and Mr Navarro have alarmed markets.