U.S. President Donald Trump's desire to influence the yen's exchange rate in the ongoing trade negotiations with Japan is likely to create challenges for both nations, analysts warned.
Trump previously accused Japan of intentionally devaluing the yen, which he argues gives Japan an unfair trade advantage. However, experts caution that shifting the value of the yen is a delicate issue that could have unintended economic consequences. Raising interest rates rapidly to boost the yen could harm Japan’s fragile economic recovery and undermine central bank independence. Conversely, Japan could sell U.S. dollars to strengthen its currency, but this could risk damaging its vast investments in U.S. debt, at a time when financial markets are already volatile.
Citigroup analysts noted that while Japan's currency remains undervalued, targeting it through a coordinated devaluation effort, known as the "Mar-a-Lago Accord," may hurt Japan's interests, especially with the current fragile financial environment. Trump has already imposed a 25% tariff on Japanese cars, and the Nikkei share index has dropped 6% since its announcement, highlighting the potential economic impact.
The yen recently gained some ground against the dollar, which has caused speculative bets on further yen strength. However, experts, such as Yunosuke Ikeda of Nomura, warn that trying to influence the dollar's value in the current environment could destabilize U.S. Treasury markets, where international investors hold a massive amount of U.S. government debt.
While Japan’s central bank desires a stronger yen, its efforts are focused on improving industrial competitiveness, and there are no immediate plans to manipulate the currency. With elections looming in Japan, the government's hands are tied on aggressive monetary policy adjustments, making Trump's expectations difficult to fulfill in the short term.
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Start your day informed with AnewZ Morning Brief: here are the top news stories for April 16th, covering the latest developments you need to know.
International financial leaders will discuss ways to restore aid to Syria during next week’s IMF and World Bank meetings.
A deadly attack at a cockfighting venue in coastal Ecuador has left at least 12 dead, with authorities investigating the scene for clues.
Colombia's president has suspended a ceasefire with a FARC offshoot after efforts to extend the truce failed, though peace talks remain on track.
A mob attack on an Ahmadi place of worship in Karachi has left one man dead, highlighting ongoing persecution of the minority group.
A Russian court has sentenced 19-year-old Darya Kozyreva to nearly three years in prison for protesting the war in Ukraine using poetry and graffiti.
International financial leaders will discuss ways to restore aid to Syria during next week’s IMF and World Bank meetings.
A deadly attack at a cockfighting venue in coastal Ecuador has left at least 12 dead, with authorities investigating the scene for clues.
Colombia's president has suspended a ceasefire with a FARC offshoot after efforts to extend the truce failed, though peace talks remain on track.
A mob attack on an Ahmadi place of worship in Karachi has left one man dead, highlighting ongoing persecution of the minority group.
A Russian court has sentenced 19-year-old Darya Kozyreva to nearly three years in prison for protesting the war in Ukraine using poetry and graffiti.
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