Japan and China Agree On Currency Pact, U.S. Criticises The Currencies


The United States Treasury has once again raised objections over the Japanese yen and the Chinese yuan, but has stopped short of labelling China a currency manipulator.

The statements, recorded in a semiannual currency report, comes after China and Japan announced a wide-ranging currency accord on Christmas day, mostly aimed at giving the Chinese yuan a more prominent role in international trade.

The key highlight from the currency accord involves the promotion of a direct yen-yuan trade, rather than converting their currencies to the dollar.

This, Japan says, is in line with their policy of diversifying their forex holdings and getting more involved in the world’s second largest economy.

Related: Hot Money Flows Out Of China, Japan To Purchase Chinese Debt

Analysts said the agreement could help boost the yuan role in Asia and internationally but that it was only one of the many tiny steps that Beijing has taken to elevate its currency’s status and that the dollar’s position as the world’s premiere reserve currency was safe for now.

The United States has, however, raised its objections over the strength of the two currencies.

The Treasury said in a semi-annual currency report that:

the yuan had risen 7.5 percent against the dollar in the 18 months since Beijing began allowing a managed appreciation, and by 12 percent if China's high inflation rate is figured in.

The Treasury, under the Obama administration, once again declined to label China a currency manipulator but reiterated that the pace of appreciation of the yuan was inadequate.

On Japan, the Treasury report noted that "rather than reacting to domestic 'strong yen' concerns by intervening to try to influence the exchange rate, Japan should take fundamental and thoroughgoing steps to increase the dynamism of the domestic economy, increase the competitiveness of Japanese firms—including those in utilities and services—and raise potential growth."

A Japanese government official said in reaction to the report that there would be "no changes" in the nation's foreign-exchange policy, adding that Japan will continue to explain Japan's foreign exchange policy to other governments.