October 18, 2016 2:00 am JST

US sees Japan closer to 'currency manipulator' tag than China

MASAYUKI YUDA, Nikkei staff writer

TOKYO -- The U.S. appears to view Japan as a bigger currency manipulator than China despite the yen's strength and the yuan's weakness against the dollar over the past year, suggesting that Tokyo's hands will remain tied in currency markets for now.

The country's Treasury Department looks at three criteria to determine whether an economy manipulates exchange rates: a trade surplus of more than $20 billion with the U.S., a current-account surplus exceeding 3% of gross domestic product, and repeated purchases of foreign currency totaling more than 2% of GDP over a 12-month period. Major U.S. trading partners that satisfy at least two of these conditions are placed on a monitoring list and remain there for at least two report cycles. Economies that meet all three may be subject to sanctions.

Both China and Japan landed on the watchlist again in a semiannual report released Friday. But China had only a substantial trade surplus this time, while Japan met the trade and current-account surplus thresholds.

Currency intervention was not a concern in either country. Yet in Japan's case, the Treasury Department cited "persistent public comments by Japanese authorities aimed at restraining yen appreciation."

With China, on the other hand, the report noted the opposite trend. "Treasury estimates that from August 2015 through August 2016, China sold more than $570 billion in foreign currency assets to prevent more rapid [yuan] depreciation," it said.

The yen has strengthened by about 13% against the dollar to the low-104 range over the past year. The yuan, meanwhile, softened about 6% over the same period to the low-6.7 range against the greenback. But Japanese policy and comments by officials suggest a desire to push the yen lower, while China has given the impression that the yuan has softened despite its best efforts.

"I have to admit that China has a bit of an edge" over Japan in its currency policy toward the U.S., said Makoto Noji, a currency and foreign bond strategist at SMBC Nikko Securities.

The two countries' differing economic conditions naturally play a role in their varying policies. Japan has returned to a current-account surplus, which tends to encourage appreciation. China, faced with such issues as a slowing economy, has been struggling with capital flight, putting downward pressure on the yuan.

Friday's currency report is the last to be issued under the current U.S. administration. The tone of the Treasury Department's evaluations could change significantly depending on the next government's policies.

Currency intervention is not urgently needed now in Japan, since the yen has not strengthened consistently beyond 100 to the dollar. But even if excessive uncertainty over the global economy or other factors send the yen higher, the government will likely be unable to step in readily to rein in the appreciation.

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