Trump won't get 'Plaza Accord'-type dollar deal, says ex-Japan FX diplomat

Reuters

08-04-2025

Summary
US needs China, Europe buy-in for 'Mar-a-Lago Accord' to work
FX intervention, even if coordinated, less effective now
Tariff damage to Japan's economy may be bigger than expected
Sharp yen rise likely remains a risk for Japan policymakers
BOJ should keep raising rates, but not now, Shinohara says
TOKYO, April 8 (Reuters) - Any U.S. attempt to pull off a 1985 Plaza Accord-type coordinated depreciation of the dollar likely won't work as it would require the consent of China and Europe, Japan's former top currency diplomat Naoyuki Shinohara said on Tuesday.
Some analysts believe the Trump administration may push through a"Mar-a-Lago Accord" - a grand bargain to weaken the overvalued dollar - to reduce the huge U.S. trade deficit.
Unlike for the Plaza Accord when the United States could work just with close allies Japan and Germany, Washington would need to engage more countries - including the China and European Union - to weaken the dollar effectively in a globalised market, Shinohara said.
Having antagonised China and Europe with his decision to impose what he describes as reciprocal tariffs, U.S. President Donald Trump will find it extremely difficult to get their consent, Shinohara added.
"In times like now, you need China to be in the loop, as well as European nations. That would be quite hard under the current circumstances," Shinohara told Reuters in an interview.
"Currency intervention, even if coordinated among nations, has become less effective because markets have become so big."
As Japan's vice finance minister for international affairs from 2007 to 2009, Shinohara negotiated with his U.S. and European counterparts for their cooperation in curbing sharp yen rises that were hurting Japan's export-heavy economy.
He was also deeply involved in world-wide efforts among policymakers to deal with the global financial crisis caused by the collapse of Lehman Brothers in 2008.
"In most past shocks, one could identify the cause. For the current one driven by Trump, it's hard to tell when and how many times shocks could hit" due to the president's back-and-forth comments on tariffs, Shinohara said. "That's leaving investors unsure how to respond" and keeping markets volatile, he said.
The damage from Trump's tariffs could turn out to be much bigger than expected for Japan's economy, due to its heavy reliance on U.S. exports - especially for cars, Shinohara said.
"Japan's reliance on U.S. exports means once the U.S. economy falters, the damage would be extremely large," he said. "What's important is for Japan to diversify its industry away from the U.S. market."
While the weak yen has been a headache for policymakers as it hurts consumption by boosting import costs, that could easily change if the currency spikes and hurts exports, Shinohara said.
"Once yen rises accelerate, it will cause a huge outcry from Japan's manufacturing sector for a policy response."
The United States is Japan's biggest export destination, with roughly 28% of the total comprised of automobile shipments.
Trump's decision to slap a 25% levy on auto imports, and a reciprocal 24% tariff on other Japanese goods, is expected to deal a huge blow to Japan's economy with analysts predicting the higher duties could knock up to 0.8 percentage points off economic growth.
On the Bank of Japan's monetary policy, Shinohara said the central bank should continue to gradually raise interest rates as inflation-adjusted, real borrowing costs remain very low.
"But with market volatility so high, it's probably impossible and undesirable for the BOJ to raise rates now."