US Treasury Places Japan on Currency Watchlist for Large Surpluses
The US Treasury has added Japan to its currency watchlist, citing significant trade and current account surpluses without labeling it a manipulator. Japan has intervened heavily, spending a record ¥9.8 trillion ($62 billion) to support the yen due to pressure from high US interest rates. The yen's value has declined, nearing a 34-year low against the dollar.
This situation has been exacerbated by the Bank of Japan's lack of clarity on reducing bond buying, leaving traders uncertain about future policy changes that could support the yen. Despite the pressure, the weak yen has boosted Japan's exports, which grew by 13.5% in May, the fastest rate since late 2022. However, this has led to higher import costs, resulting in a widened trade deficit of ¥1.22 trillion ($7.7 billion). Economists note that while the weak yen benefits exporters, it also increases costs for companies due to higher import bills. Over 60% of surveyed Japanese firms anticipate that the weak yen will negatively impact their profits.
Key Takeaways
- Japan added to the US Treasury's currency watchlist for large trade and current account surpluses.
- Japan spent a record ¥9.8 trillion ($62 billion) to support the yen in 2024.
- Weak yen boosts Japan's exports by 13.5% but increases import costs, widening the trade deficit.
Analysis
The US Treasury's inclusion of Japan in its currency watchlist reflects concerns over Japan's interventionist monetary policy. Despite attempts to support the yen, its decline has impacted both exporters and importers. While exports have surged, the resultant import cost increase has widened the trade deficit, impacting corporate profitability. The lack of clarity from the Bank of Japan regarding bond-buying reduction further complicates market expectations.
Did You Know?
- Current Account Surplus: Japan's current account surplus indicates a strong economy, a vital criterion for the US Treasury's currency manipulation label.
- Foreign-Exchange Interventions: Japan's heavy spending to support the yen is a notable example of foreign-exchange interventions.
- Bilateral Trade Surplus: Japan's significant bilateral trade surplus contributes to its inclusion on the US Treasury's watchlist.