US Treasury says FX intervention should be reserved for ‘very exceptional circumstances’ in response to Japan’s September decision

The US Treasury Department said on Thursday it expected foreign exchange interventions, such as Japan’s in September, to be reserved for exceptional circumstances, as it kept Tokyo on a list of partners including it monitors practices.

As the report notes, Japan intervened in September to support the yen USDJPY,
in the first such move since 1998. Japan last intervened to weaken its currency in 2011.

Now read: Yen rallies after Japan’s unilateral intervention for first time in 24 years

In its semi-annual report to Congress on the exchange rate and macroeconomic policies of major US trading partners, the Treasury made it clear that it expects a high bar for such measures.

“The firm expectation of the Treasury is that in large, freely traded foreign exchange markets, intervention should be reserved only in very exceptional circumstances with appropriate prior consultation,” the report said.

The US dollar fell sharply against the yen USDJPY,
in response to the intervention of September 22. The dollar briefly touched its highest level against the yen in more than 30 years in October, although dollar strength has eased somewhat since then.

In addition to Japan, the Treasury said six other countries were on its watch list of major U.S. trading partners whose monetary practices and economic policies deserve “special attention”: China CNYUSD,
Germany EURUSD,
Malaysia MYRUSD,
Singapore SGDUSD,
and TWDUSD from Taiwan,

The report concluded that no major trading partner of the United States manipulated its currency against the dollar to gain unfair trade advantages in the four quarters to June 2022.

The Treasury reiterated its call for increased transparency from China. A senior Treasury official told reporters that the United States had not had much response from China to the US call.

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