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Currency focus on Snow's Asia trip
TOKYO, Japan (Reuters) -- U.S. Treasury Secretary John Snow, facing calls at home to take a stand against trade-distorting currency manipulation, was set to meet top Japanese officials as markets waited nervously for any sign that Japan would step back from its policy of preventing a higher yen. As Snow prepared to meet Japanese Finance Minister Masajuro Shiokawa and Prime Minister Junichiro Koizumi before heading for Beijing, China on Tuesday, U.S. business and labor groups urged him to be tough with the Asian trade giants. The U.S. dollar slipped on Monday as markets awaited word from Snow's meetings, the first of which was a breakfast engagement with members of Japan's ruling Liberal Democratic Party, many of whom would be happy to see the yen stay low. A relatively weak yen helps Japanese exports, a key driver of the economy, which is showing signs of revival after more than a decade of stagnation. Both the United States and Japan have also expressed concern about China's currency, the yuan, which is virtually pegged to the dollar and is often seen as being undervalued. Critics say a stronger yuan, which would result from a looser exchange rate mechanism, would reduce what many think is China's unfair trade advantage. As Snow left Washington, the National Association of Manufacturers (NAM) and about 80 other groups said they may seek an investigation into China's currency policies that could trigger trade sanctions if a settlement was not reached. Another group, the Coalition for a Sound Dollar, said both Japan and China kept their currencies artificially low, thus gaining an unfair trade advantage that U.S. companies could not meet, which was costing American jobs. Deal from strengthThe dollar was trading at about 116.61 yen at midday in Tokyo on Monday after falling to as low as 116.15 in New York on Friday after Japan said it had refrained from intervening in the currency market in the four weeks to August 27. The news surprised the market. Up to that time, Japan had spent about nine trillion yen ($77 billion) since the start of the year in an effort to keep the yen from rising too far too quickly. NAM said its trade action threat was aimed directly at strengthening Snow's hand in Asia. The U.S. Treasury chief has noted that freely floating currency exchange regimes, in which market forces set rates, are to be preferred, but has largely refrained from direct criticism of China or Japan. U.S. officials make no secret of their concern about the sluggish performance of Japan, which has been in and out of recession for the past decade. Diplomacy preferredDespite recent signs of improvement, Japan's economy remains burdened by deflation, or falling prices, and by a mountain of bad bank loans that are not being repaid. Snow was expected to press for information about the Koizumi government's efforts to reform its economy and get its banking sector into a condition to help rather than hinder the effort, but to offer more praise than criticism. Snow has expressed his preference for diplomacy in dealing with Asia. In addition in Japan's case, U.S. officials are sensitive to the fact that Koizumi soon faces elections and they do not wish to complicate his reformist government's approach. Snow also was expected to discuss with Koizumi and Shiokawa the effort to boost aid from the international community for Afghanistan and Iraq. Japan is a co-chair with the United States of a group of donor countries to Afghanistan, which is expected to need more money to rebuild its economy. In addition, a separate donor group is being organised to raise reconstruction money for Iraq, and Japan will be asked to contribute, though no specific amounts are likely to be discussed.
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