Currency manipulation is an effort to tinker with the value of a nation's currency about foreign currency exchange rates to boost exports in international trade or reduce its debt interest burden.
In its biannual report to Congress, which covered economic data from the 20 largest U.S. trading partners for the four quarters through Dec. 2023, the department also placed six other countries on the list – China, Germany, Malaysia, Singapore, Taiwan and Vietnam.
The list uses three criteria to assess whether a country has manipulated its foreign exchange rates to gain an unfair trade advantage. A country would meet all three if it had a trade surplus with the United States of at least $15 billion, a current account surplus of at least three percent of gross domestic product and if it had engaged in persistent, one-sided intervention in foreign exchange markets.
The listing came after Japan resumed its interventions in the currency market to stop the yen's rapid decline against the U.S. dollar in April and May. According to reports, Tokyo spent 9.8 trillion yen ($61.6 billion) between April and May this year to stem its depreciation, after the Japanese currency hit a 34-year low of 160.245 per U.S. dollar on April 29. The report also cited Japan’s high trade surplus of $62.4 billion with the U.S. last year and its global current account surplus of 3.5 percent of gross domestic product in 2023, up from 1.8 percent in 2022.
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While the Treasury Department said Tokyo's recent foreign exchange interventions to prop up the value of the yen were not a factor in deciding to place the country on the list, it noted that "intervention should be reserved only for very exceptional circumstances with appropriate prior consultations."
Japanese Minister of Finance Shun'ichi Suzuki said on Friday, June 21 that Tokyo will maintain close communication with Washington regarding currency policy.
Speaking to reporters the previous day, Finance Minister Vince Minister for International Affairs Masato Kanda, who also serves as the country's top currency diplomat, said he did not see a problem with Japan being included on the U.S. currency monitoring list, adding that it was assessed according to mechanical criteria.
The department did not also designate any trading partner as a currency manipulator, which could result in the imposition of U.S. sanctions.
Treasury: No currency manipulation in 2023
Though it listed Japan, China, Germany, Malaysia, Singapore, Taiwan and Vietnam on the watchlist, the department reported that no major trading partner appeared to have manipulated its currency last year.
"Thus, it is not a surprise that in the four quarters through the end of 2023, no trading partner was found to have manipulated the rate of exchange between its currency and the U.S. dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade," the Treasury said.
The semi-annual currency report also found that none of the countries examined met all three criteria triggering "enhanced analysis" of their foreign exchange practices during the four quarters through Dec. 2023.
The Treasury Department said Japan, Taiwan, Vietnam and Germany all met the criteria for trade surpluses and an outsized current account surplus. Meanwhile, Singapore met the criteria for engaging in persistent foreign exchange intervention and a material current account surplus and Malaysia only met the current account surplus criteria, but once on the list, it takes two currency report cycles to be dropped off.
China was kept on the monitoring list because of its large trade surplus with the U.S. and because of a lack of transparency surrounding its foreign exchange policies. The Treasury Department reiterated that China's failure to disclose foreign exchange interventions and its lack of transparency around key features of its exchange rate system makes it "an outlier among major economies."
"China’s failure to publish foreign exchange intervention and broader lack of transparency around key features of its exchange rate mechanism continues to make it an outlier among major economies and warrants Treasury's close monitoring," the report included. (Related: Russia and China now conducting 90% of financial settlement transactions in national currencies – once the new BRICS currency arrives, it’s GAME OVER for the U.S. dollar.)
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