Major US trading partners China and Japan are no manipulating their currencies to improve their economies, according to the US Treasury Department. On Friday evening Treasury released its semi-annual “Report to Congress on International Economic and Exchange Rate Policies.”
Still despite the report, the dollar has been firming and talk continues that the globe is in the midst of currency war, even as governments and others claim it isn’t the case.
Despite Treasury’s claims that China needs to do more to boost the value of the RMB and that Japan must be careful in its current quantitative easing style stimulus, the department concluded that it wasn’t manipulation.
“The process of exchange rate adjustment in China remains incomplete and more progress is needed,” the Treasury wrote in its report. “The RMB remains significantly undervalued and large-scale foreign exchange market intervention has resumed. Moreover, China continues to lack transparency in its exchange rate practices. In contrast to most other G-20 members, including emerging market members, China does not disclose data on its FX intervention, subscribe to the IMF’s Special Data Dissemination Standard on reserve transparency or report to the IMF’s Currency Composition of Official Foreign Exchange Reserves database.”
China has at past G20 meetings Chinese acknowledge that it needs to continue exchange rate reform as well continue its progress toward “a market-determined exchange rate.”
As for Japan, worrisome to the Treasury were comments from Japanese officials around election time in that country, which suggested that policies “would… be directed towards correcting yen strength.” Although Japanese officials have backtracked from these statements, the country’s actions perhaps speak louder: earlier in April the Bank of Japan announced a new monetary policy plan, which included pumping about $1.4 trillion into the Japanese economy via accelerated purchases of domestic assets. While this measure was said to target inflation it has had the effect of weakening the yen. According to Reuters, the dollar has gained about 7 percent and the euro is up more than 9 percent since the BOJ began the purchase.
Nonetheless, Treasury concluded in its report, “no major trading partner of the United States met the standard of manipulating the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade as identified in Section 3004 of the Act during the period covered in the Report.”