Accusing Monetary Easing

A short remark made by United States President shook Japanese politics and economy on Wednesday. President Donald Trump for the first time accused Japan’s monetary policy as manipulation for devaluation. Prime Minister Shinzo Abe opposed Trump’s viewpoint as inappropriate. Bureaucrats boasted with notion of American isolationism. However, Tokyo Foreign Exchange showed steep up and down. This is the time when the leader of world biggest economy innocently intervenes in monetary market.

The scene was repeatedly reported in TV. “Every other country lives on devaluation. You look at what China’s doing, you look at what Japan has done over the years,” told Trump in a meeting with U.S. pharmaceutical executives on Tuesday. Trump criticized U.S. policy which looked like “a bunch of dummies” sitting in front of regulation and devaluation other countries exercised. It was an unusual intervention of U.S. President, who represented a country that possessed the most powerful key currency.

Distortive consequence immediately appeared. The value of Japanese yen suddenly rose as U.S. dollar was sold in New York Foreign Exchange on Tuesday. As a collateral damage of that, Tokyo Foreign Exchange marked ¥112 for one dollar, the highest level in these two months. Then, it got back to ¥113 in the evening.

Prime Minister Shinzo Abe contradicted Trump’s comment. “As we entrust monetary policy of Bank of Japan, the criticism of currency manipulation is undeserved,” said Abe in Committee of Budget in House of Representatives on Wednesday. Vice-minister of Finance for International Affairs, Masatsugu Asakawa, argued that monetary easing in “different dimension” conducted by BoJ Governor, Haruhiko Kuroda, was for tackling deflation and what Trump said made no sense. Based on international agreement in Group of 20 to allow monetary easing for economic stabilization, Ministry of Finance recognizes that Japan is in the major group.

However, Trump does not look like caring about multilateral framework such as G20. One truth is that Kuroda’s monetary easing policy has caused low-valued Japanese yen over the years, regardless the purpose he announced. It is likely for Trump to put pressure on Abe for lower value of U.S. dollar in the bilateral meeting next week.

Abe appealed his diplomatic skill in the committee, when he was asked of resolved attitude against unilateral behavior of U.S. President. “I want to plainly explain that good Japanese economy is not negative for U.S. economy. We will talk about how Japan is going to produce jobs in U.S. and contribute to higher productivity or reinforcement of competitiveness of U.S. industry as a whole,” said Abe. But, he looked like ignoring that new American leader is totally different from previous ones.