Japan Fires Back At Trump, Denies Yen Devaluation

From Tyler Durden: In a shot across the trade war bow with both Japan and Germany, on Tuesday Trump and members of his administration took aim at both Japan and Germany, in addition to China, to accuse them of devaluing their respective currencies, an unexpected move which sent the dollar sliding to multi-month lows.

Specifically, on Tuesday morning Trump said: “You look at what China’s doing, you look at what Japan has done over the years. They play the money market, they play the devaluation market and we sit there like a bunch of dummies,” according to a transcript in Congressional Quarterly.

Prior to Trump’s statement, Trump’s top trade advisor, Peter Navarro spoke to the FT, taking aim at Germany, saying it was gaming foreign-exchange markets. His comment sent the EUR surging and precipitated a sharp drop in the dollar. Chancellor Angela Merkel rejected the accusation. At the same time, Donald Tusk, the EU’s president, placed the U.S. alongside Russia, China and terrorism as a source of instability. “The change in Washington puts the European Union in a difficult situation, with the new administration seeming to put into question the last 70 years of American foreign policy,” Tusk said in a letter to European leaders on Tuesday ahead of an EU summit on Feb. 3.

Overnight, it was Japan’s turn, after Prime Minister Shinzo Abe, his main cabinet advisor, Suga, and Japan’s top foreign exchange official on Wednesday all pushed back against Trump’s assertion that Japan is keeping its currency devalued.

“Japan’s monetary policy is for the domestic purpose of beating deflation, and isn’t done with FX in mind, so I think that those remarks are a little bit wide of the mark,” said Masatsugu Asakawa, the Finance Ministry’s foreign exchange policy chief.


Masatsugu Asakawa

Speaking in parliament, Abe said that it is not accurate to say that Japan is devaluing the yen, and that he would explain Japan’s monetary policy to Trump if necessary. He said that it’s important to exchange views, including thoughts on foreign exchange. Chief Cabinet Secretary Yoshihide Suga earlier called Trump’s comments “totally inaccurate.”Trump on Tuesday said: “You look at what China’s doing, you look at what Japan has done over the years. They — they play the money market, they play the devaluation market and we sit there like a bunch of dummies,” according to a transcript in Congressional Quarterly.

As Bloomberg adds, the barbs with Japan indicate likely friction points when Trump and Abe meet next week in the U.S. This isn’t the first time that Trump has raised the issue of Japan’s currency and relations with the U.S. On the campaign trail in 2015, he accused Japan of currency manipulation. At a press conference on Jan. 11 this year, he said the U.S. has a “trade imbalance” with Japan.

Asakawa added that Japan hasn’t recently intervened in the currency market, “so without more explanation, I am not sure what is being referred to.” The last time Japan intervened was in 2011, when the yen hit a postwar high in the aftermath of the Fukushima earthquake and nuclear meltdown.

Actually, considering the BOJ’s balance sheet is about the size of Japan’s GDP, even as the central bank has nationalized over two thirds of all outstanding ETFs, it is pretty clear what Trump is referring to.

Taking steps further, Japan’s Finance Minister Taro Aso said in parliament on Tuesday that Trump had introduced “a new factor of uncertainty,” which could contribute to a weak yen and strong dollar for “some time.” Aso will accompany Abe and explain Japan’s foreign exchange and monetary policies to Trump in the U.S. next week, according to a Reuters report, citing a government source.

Japan’s government watches the currency markets with a sense of vigilance and acts with purpose when necessary, Suga told reporters in Tokyo at the afternoon press briefing. “It will be very important for Japan and the U.S. to reach mutual understanding on the economy and trade, including the currency problems.”

Of course, what Trump told is nothing but the truth, however “established” regimes and their central banks, unfamiliar with being called out for engaging in active devaluation, are now scrambling to come up with a new narrative, one which factors in Trump’s unexpected outbursts of truth. That said, even with Trump’s accurate observation, it is unclear how he could override the ongoing currency devaluation in Japan and Europe, whose central banks continue to engage in record monetization, aided by negative rates. Unless Trump actively lobbies for a Fed rate cut – or more QE – his angry words at other currency intervening regimes will remain hollow. Unless, of course, the US rapidly tumbles into recession.

The iShares MSCI Japan ETF (NYSE:EWJ) was trading at $50.97 per share on Wednesday morning, up $0.4 (+0.79%). Year-to-date, EWJ has gained 4.32%, versus a 2.16% rise in the benchmark S&P 500 index during the same period.

EWJ currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 80 ETFs in the Asia Pacific Equities Ex-China ETFs category.


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