The US-Japan Currency Battle: Trump’s Misconception and the MoF’s Interventions
US President Donald Trump’s frequent criticisms of Japan and China for weakening their currencies to gain an unfair economic advantage over the United States have been a recurring theme in his speeches and tweets. However, an in-depth analysis reveals that Trump might have overlooked some crucial aspects of the monetary policies of these countries.
Japan’s Monetary Policy: Strengthening the JPY
According to Rabobank’s FX strategist, Jane Foley, the Ministry of Finance (MoF) in Japan has been intervening in the foreign exchange market since 2022 to strengthen the Japanese Yen (JPY) rather than weaken it. The MoF has been selling JPY in the forex market to keep the currency from appreciating too much against other major currencies.
Why Strengthen the JPY?
The main reason behind Japan’s currency intervention is to keep its exports competitive in the global market. A stronger JPY makes Japanese exports more expensive for foreign buyers, making it harder for Japan to sell its goods abroad. By selling JPY in the forex market, the MoF is able to increase the supply of JPY and put downward pressure on its value.
The Impact on the US
The US, being a major importer of Japanese goods, might not directly benefit from this policy as the stronger JPY makes Japanese exports cheaper and more attractive to American consumers. However, it could indirectly affect the US economy by making US exports more expensive and less competitive in the global market.
The Impact on the World
The MoF’s currency intervention could also have far-reaching implications for the global economy. A stronger JPY could lead to a weaker US dollar, which could result in higher inflation and lower interest rates in the US. This, in turn, could lead to increased borrowing and spending, boosting economic growth but also potentially fueling inflation.
The Global Currency Wars
The ongoing currency wars between major economies, including Japan, China, and the US, could lead to increased tensions and potential trade conflicts. As each country attempts to manipulate its currency to gain a competitive edge, it could lead to a destabilization of the global currency markets and potentially disrupt international trade.
Moreover, the use of currency intervention as a tool to gain economic advantage raises questions about the effectiveness and fairness of such policies. It could also lead to a race to the bottom, where countries engage in increasingly aggressive currency intervention, leading to a vicious cycle of depreciating currencies and escalating trade tensions.
Conclusion
In conclusion, US President Trump’s claims that Japan and China are weakening their currencies to gain an unfair advantage over the US may not be entirely accurate. Japan’s MoF has been intervening in the forex market to strengthen the JPY, making Japanese exports more competitive in the global market. This could have implications for the US economy, as well as the global economy as a whole, potentially leading to increased tensions and trade conflicts.
- Japan’s MoF has been intervening in the forex market since 2022 to strengthen the JPY.
- The stronger JPY makes Japanese exports cheaper and more attractive to foreign buyers.
- A stronger JPY could lead to a weaker US dollar and potentially higher inflation and lower interest rates in the US.
- The ongoing currency wars between major economies could lead to increased tensions and potential trade conflicts.
