Abe poised to rebut Trump criticism over Japan devaluating yen

Prime Minister Shinzo Abe said he is ready to rebut any unreasonable criticism from U.S. President Donald Trump in upcoming summit talks that Japan has driven down the value of the yen over the past several years to make its exports lucrative.

"I'll rebut what is necessary," Abe told a House of Representatives Budget Committee session on Feb. 1. Therefore, currency exchange policy could emerge as a key point of contention during the summit meeting on Feb. 10.

"You look at what Japan has done over the years. They play the money market, they play the devaluation market," Trump said on Jan. 31.

Trump described Japan-U.S. car trade as "unfair" and is poised to demand Tokyo hold talks aimed at signing a bilateral trade agreement. However, the rate of Japan's import tariffs on imported automobiles is already zero. As the United States has little ammunition for attacking Japan's car trade practices, the U.S. automobile industry has cited Japan's currency exchange policy as a trade barrier.

The U.S. automobile industry has repeatedly complained that Japan has devaluated the yen to increase Japanese automakers' exports to the United States.

Mark Fields, CEO of Ford Motor Co., told reporters on Jan. 24 that "the mother of all trade barriers is currency manipulation." He thus indicated that he underscored the need to drive down the value of the U.S. dollar during a meeting with President Trump.

Trump's latest comment on Japan's currency exchange policy apparently reflects the industry's views.

The U.S. president has also mentioned the possibility of incorporating a clause on restrictions on currency policies in the country's bilateral trade accords with its allies including Japan. Trump is apparently prepared to do anything to achieve his "America First" policy. His government could urge Japan to make concessions on trade in automobiles and agricultural products by threatening to impose trade sanctions on Japan because of what he criticizes as Tokyo's deliberate devaluation of the yen.

However, the recent appreciation of the dollar was caused largely by the United States. Trump's policy of investing a massive amount of money in infrastructure has raised hope that the U.S. economy will grow, encouraging investors to buy the dollar on the foreign exchange market. If the U.S. economy picks up, the Federal Reserve Board could raise interest rates to prevent the economy from overheating, contributing to the appreciation of the dollar. Therefore, Trump faces such contradictions in his own policy.

President Trump's verbal intervention in other countries' currency exchange policies could disturb cooperation within the Group of Twenty (G-20).

In the eyes of Trump, the world economy is a venue for zero-sum games, according to a former top U.S. administration official. As such, the president appears not to care about U.S. cooperation with its allies.

However, if the United States, which has played a leading role in the G-20, were to pursue only its own profits, it could trigger competition between member countries for devaluation of their own currencies, further worsening the world economy.

Masatsugu Asakawa, vice finance minister for international affairs, appears bewildered by Trump's remarks. "Japan recently hasn't made such interventions. If he criticizes Japan's monetary policy, it would miss the point a little bit because Japan's policy is aimed at overcoming deflation," he said. The situation in Japan, which has not intervened in foreign exchange rates since November 2011 -- following the Great East Japan Earthquake -- is different from that of China, which is intervening in the currency exchange market on a daily basis.

Trump apparently criticized the Bank of Japan (BOJ) for drastically easing its monetary grip. However, the Group of Seven (G-7) and G-20 permit declines in the value of member countries' currencies as a result of credit easing aimed at overcoming deflation while agreeing to avoid competition for the devaluation of their respective currencies with the aim of increasing their exports. The BOJ's credit easing is aimed at helping Japan overcome deflation.

Some government and BOJ officials remain confident about countering Trump's criticism. "Mr. Trump apparently doesn't know the content of G-7 and other agreements. Even if the issue is brought up at the summit, Japan will only rebut it," said a senior official of the Finance Ministry.

Still, it remains to be seen whether Trump will understand such a rebuttal.

There are observations that if Abe and Trump discuss monetary policy at their summit, it could cause the yen to appreciate, according to Daisuke Karakama, chief economist at Mizuho Bank. If the Japanese currency surges, it could pour cold water on exporters' efforts to improve their business performances.