Work Beyond G20 to Counter Trump's Currency Demands

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What does Donald Trump's administration want from Japan regarding its exchange rate policy? As long as that is not made clear, we cannot afford to let our guard down.

Finance Minister Katsunobu Kato flew to the United States to attend the two-day G20 Finance Ministers and Central Bank Governors Meeting from April 23 to April 24. However, after the G20 summit concluded, he met separately with US Treasury Secretary Scott Bessent. The two reportedly discussed exchange rate policy, one of the topics raised in US-Japan tariff negotiations.

Demands for a Weaker Yen

US President Donald Trump has been adamant in calling for a weaker dollar to boost American exports. Nevertheless, at the meeting, Bessent did not raise any hardline measures, such as setting an exchange rate target or establishing a currency agreement — steps that Japan is currently wary of.

Instead, both Japan and the US reaffirmed their commitment to allowing exchange rates to be determined by the market, in line with the G7 agreement.

The worst-case scenario has not materialized for the time being, but bilateral currency negotiations are set to continue. There is also the possibility that Trump may harden his stance. Come what may, Japan must not waver and maintain its stance of rejecting unjust demands.

Unfounded Accusations

Trump has, on more than one occasion, singled out Japan for allegedly encouraging a weaker yen. However, that accusation is a complete distortion of the actual situation. This is evident from the decisive policy measures the Japanese government has taken to counter the yen's rapid depreciation.

There has reportedly been discussion within the Trump administration of policy coordination similar to the Plaza Accord of 1985 designed to weaken the dollar. However, the economic situation today is quite different from how it was 40 years ago. The effects of foreign exchange intervention would undoubtedly be limited.

*The Bank of Japan head office in Chuo-ku Tokyo, March 19, 2024. (©Kyodo)*

Manipulation Must Be Kept Minimal

G7 countries share the view that market prices should not be manipulated artificially unless abrupt fluctuations are causing severe damage to an economy. That should be the basis for any negotiations.

The concern is that the United States will step up pressure to induce a stronger yen and thereby restrict Japan's monetary policy.

For example, interest rates have a major impact on creating a strong yen. Might not Trump exert pressure to have the Bank of Japan (BOJ) raise Japan's interest rates?

Trump has already urged Federal Reserve Board Chairman Jerome Powell to resign due to Trump's dislike for the FRB's monetary policy. In the end, although Powell refused to resign, Trump's high-handed behavior caused considerable confusion in the markets. Japan's negotiators should emphasize this point.

Ongoing Uncertainty

Meanwhile, the G20 summit failed to issue a final joint statement or chair's summary. Participating countries repeatedly noted the negative impact that the US tariff policy has had on the economy.

Many countries are currently negotiating with the US. Consequently, it will be difficult to find consensus in a forum that also includes China, which has taken countermeasures in response to the US tariffs.

We would like to see Japan address the uncertainty gripping the global economy by transcending the G20 framework and working with a wide range of countries, including those in Europe and Southeast Asia.