Masatsugu Asakawa, a former top Japanese currency official, stated that despite U.S. President Donald Trump's criticisms of the large trade surplus between the United States and Japan, Japan is unlikely to face pressure from the U.S. to deliberately appreciate the yen. Audio generated by Kozy Space.
Trump's stance focusing on addressing the U.S. trade deficit and his comments about Japan maintaining a weak yen have fueled speculation that Tokyo might face pressure to adjust the yen's exchange rate to give U.S. manufacturers a competitive advantage. However, Asakawa views the situation as more nuanced.
Asakawa clarified that the U.S. dollar's status as a global reserve currency remains strong. However, he noted that following Trump's April 2 announcement of sweeping "reciprocal" tariffs, the dollar became more vulnerable to selling pressure. In an interview late Wednesday, he said, "If the dollar weakens, that would accelerate inflation in the United States. Bissonet seems to be well aware of this risk. My understanding is that in the context of trade negotiations, there were no specific discussions about currency issues between Bissonet and Katsunobu Kato."
When asked if a coordinated action led by Washington from the Group of Seven (G7) advanced nations to weaken the dollar, similar to the 1985 Plaza Accord, was likely, Asakawa dismissed the possibility.
"A second Plaza Accord is unlikely," he said, pointing out that it would require the agreement of China and Europe. Notably, Asakawa maintains close ties with current policymakers.
Asakawa, as vice minister of finance for international affairs from 2015 to 2019, was deeply involved in trade and currency negotiations between Japan and the U.S. during Trump's first presidential term, which began in 2017.
Asakawa said that then-Japanese Prime Minister Shinzo Abe successfully persuaded Trump during his first term to leave exchange-rate issues to the finance ministers of the two countries.
"Since then, the idea that currency issues should be left to finance leaders seems to have taken root inside the U.S. government," he added.
In their first face-to-face meeting in April, Katsunobu Kato said he agreed with Bissonet to continue a "constructive" dialogue on monetary policy but did not discuss setting currency targets or a framework to control yen volatility.
The dollar index, which reflects the dollar's performance against a basket of six other currencies, experienced its worst first half of the year since 1973, declining by about 11%. So far this year, the dollar-yen exchange rate has declined by 7.5%.
Asakawa pointed out that the outcomes of bilateral trade negotiations are difficult to predict, and Trump has shown little sign of offering concessions to Tokyo on auto tariffs.
Trump escalated his trade war on Monday, informing 14 countries that they would now face sharply increased tariffs starting from a new deadline on August 1. Unless they can negotiate a deal with Washington, the tariffs facing Japan will rise from 10% to 25%. On Tuesday, Trump again issued eight tariff "ultimatums," with Brazil becoming the primary target with a 50% tax.
Asakawa said Japan has several cards it can play in trade negotiations with Washington, such as pledging to increase investment in the United States, reviewing domestic auto safety standards, and contributing to a liquefied natural gas (LNG) project in Alaska. He concluded:
"Rather than scatter the cards, it is better to play them together."
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