Treasury's Adams Warns Japan Against Holding Down Yen
quote.bloomberg.com
March 14 (Bloomberg) -- U.S. Treasury Undersecretary for International Affairs Tim Adams cautioned Japan during a recent visit to Tokyo against taking steps to prevent its currency from strengthening, people familiar with the meetings said.
The warning, which came in discussions with senior Ministry of Finance and Bank of Japan officials, follows complaints by U.S. automakers that Japan keeps the value of the yen artificially low to make its exports more competitive.
Treasury officials, led by Secretary John Snow and Adams, have been pushing Asian countries to stop manipulating their currencies and let them move more in line with market forces. Most of those efforts recently have been directed at China, although the Treasury in 2004 objected to Japan's steps to influence the value of the yen. Currency analysts said the warning comes at what could be a turning point for the yen.
``The comments by Tim Adams were a bombshell,'' said Callum Henderson, a currency strategist in Singapore at Standard Chartered Plc. ``This is the first clear warning in a very long time by the U.S. that Japan shouldn't cap the rise in the yen. The implicit assumption is the yen will indeed strengthen.''
A Treasury spokeswoman declined to discuss Adams' meetings in Tokyo. He was in the city from Feb. 27 to March 1 as part of a 13-day trip to Asia that also included a visit to Beijing.
Three-Year Slide
The yen did strengthen briefly on March 9 when the Bank of Japan scrapped its five-year-old policy of fighting deflation and said it would cut the cash it provides lenders by 80 percent during the next few months. The currency gave up those gains the same day and fell again a day later after a larger-than-forecast jump in U.S. jobs caused futures traders to raise their bets for more increases in the Federal Reserve's key interest rate.
Japan's currency traded at 118.58 against the dollar as of 11:15 a.m. in Tokyo from 118.73 in New York yesterday.
After falling for three straight years, the dollar rose 15 percent against the yen last year. Japan's currency is forecast to rise to 115 to the dollar by end-March, the median of 15 estimates in a Bloomberg survey from Feb. 17-27 shows.
``The yen is the cheapest it has been for 20 years and will inevitably regain ground,'' said Henderson, who expects it to strengthen to as far as 100 against the dollar by the year-end.
Japan hasn't tried to lower the value of its currency by selling yen in the market for almost two years. From January 2003 to March 2004, the Bank of Japan sold 35.3 trillion yen ($298 billion) to keep the country's currency from appreciating.
`Jawboning'
``We have complained that the Japanese use jawboning to keep the yen down,'' said Stephen Collins, president of the Automotive Trade Policy Council, which represents Ford Motor Co., General Motors Corp. and Daimler-Chrysler AG. ``Treasury has been sympathetic.''
Currency analysts say the yen's weakness may be caused by other factors than central bank involvement in the market.
``With the recovery of the economy, lots of money is flowing out of Japan to take advantage of opportunities abroad,'' said Yusuke Horiguchi, the deputy managing director of the Institute of International Finance in Washington. ``They are diversifying their portfolios, and that has meant the acquisition of assets abroad.''
Adams told reporters on March 6 after his return from Asia that he doubted any efforts by Japan to talk down the value of the currency would have much of an effect. ``In a $2 trillion-a- day market, I think it's extremely difficult to jawbone a major currency in one way or another,'' he said.
`Turned Corner'
He was also upbeat about the outlook for the second-biggest economy in the world. It ``has really turned the corner after a dozen years,'' Adams said. ``It appears that the fundamentals are strong and the recovery is sustainable.''
The economy grew at a 5.4 percent annual pace in the fourth quarter, surpassing the U.S.'s 1.6 percent growth rate.
``Japan's economy has turned the corner and monetary policy has moved away from being ultra-accommodative,'' said David Gilmore, a partner at Essex, Connecticut-based Foreign Exchange Analytics. ``The Japanese should be willing to tolerate a stronger yen'' to help bring world trade into better balance.
The U.S. trade deficit with Japan widened to $82.7 billion last year from $75.2 billion the year before. It was America's second-biggest trade gap, after that with China, where the imbalance was $201.6 billion. The deficit with Japan in January was $6.5 billion, up from $6.2 billion a year earlier.
The U.S. imported $52 billion worth of autos and auto parts from Japan last year, and exported only $1.9 billion of such goods to Japan, according to U.S. Census Bureau data.
Asian-based automakers posted the biggest gain in market share of U.S. vehicle sales in February, rising 0.9 percentage points to 37.0 percent from the year-earlier month.
Honda Corp. increased its share of the market to 8.5 percent from 7.8 percent, while Toyota Corp. boosted its share to 13.2 percent from 13 percent.
GM's share fell to 23.4 percent from 24.2 percent, while Ford's share dropped to 18.2 percent from 18.9 percent.
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