Rude remarks from JapanJapanese Prime Minister Naoto Kan complained that individual countries’ actions to keep their currencies undervalued go against the G-20 consensus, specifically naming China and Korea to “act responsibly.” Japan’s Finance Minister Yoshihiko Noda also singled out Korea for intervening in the currency market, warning that Tokyo officials plan to urge Korea to play a more responsible role befitting the G-20 host nation.
The comments from Japan come as an acrimonious dispute between the United States and China over currency policy evolves into a global currency war.
A senior official at the Ministry of Strategy and Finance said the Korean government strongly complained about the statements, and Tokyo responded by saying that it won’t happen again. But we have a hard time believing the Japanese official’s explanation. We cannot shrug off Japan’s high-profile public disapproval of Korea’s currency policy as an accidental slip of the tongue. The Japanese finance minister also said he knew nothing of the Korean government’s objection to his comment on currency policy.
We have to wonder why Japan suddenly wants to argue with Korea over currency issues, especially when the country directly intervened in the market to stem the rise in the yen and help its exporters. Tokyo may be seeking to divert internal criticism over its failure in market intervention by pointing the finger at Seoul. Its yen-selling fell short of slowing the runaway appreciation of the yen.
We can, to some extent, understand the dilemma the Japanese authorities are in. They must have been frustrated by the soaring yen regardless of their zero-yield interest and extremely loose monetary policy. They would want to blame their failure on their major export rival and accommodative foreign exchange policy. There was a report that Japanese authorities had considered a large-scale won purchase at the demand of Japanese exporters. It cannot be regarded fair play to blame the other party for their loss in corporate competitiveness.
We can hardly be accused of manipulating foreign exchange rates to keep the won undervalued. The won has appreciated nearly 5 percent in just a month, the fastest pace among Asian currencies. The Bank of Korea kept the benchmark interest rate unchanged because of the won’s surge despite inflationary pressure. If not for the upcoming G-20 Summit, Seoul may have aggressively intervened in the market. It is rude for Japan to accuse Korea, regardless of its restraint.
It is not only Japan. Many countries are struggling to restore their economies, and the tension over currency policy is growing fiercer.