Latest news with #MAR-A-LAGOACCORD
Zawya
18-04-2025
- Business
- Zawya
Why the yen is the wrong gambit in any US-Japan trade dispute
TOKYO - U.S. President Donald Trump's desire for a stronger yen against the dollar is almost certain to figure into trade negotiations with Japan underway in Washington, but analysts say any effort to shift the currencies is fraught with risks for both sides. Japan's chief negotiator, economy minister Ryosei Akazawa, got talks started on Wednesday by meeting with U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson, with Trump also making a surprise appearance. The White House put the exchange rate unequivocally on the agenda after Trump last month accused Tokyo of pursuing a policy to devalue the yen, giving the Japanese an unfair trade advantage. The yen didn't figure into Wednesday's negotiations, Akazawa said, but currency issues are more naturally a discussion for Finance Minister Katsunobu Kato, who will have his own round of talks with Bessent when he arrives in Washington next week for International Monetary Fund and World Bank meetings. Analysts warn that any deal on where the dollar should trade versus the yen is inherently tricky. An attempt by Tokyo to force the Bank of Japan into speeding up rate hikes could push up the yen, but risks snuffing out Japan's fledgling economic recovery and tramples on the idea of central bank independence. Japanese officials could also sell U.S. dollars for yen, but that would mean pulling out billions of dollars it has invested in U.S. debt at a time when markets are particularly fragile. Citigroup sees Japan as a prime target in the event that the Trump administration takes aim at a coordinated devaluation of the dollar to make the United States more competitive globally, a proposal dubbed the "Mar-a-Lago Accord". "At this point we do not see a 'Mar-a-Lago Accord' as a concrete risk," Citigroup currency strategist Osamu Takashima said in a research note. However, "countries such as Japan, which have sizeable foreign currency reserves and whose currency is undervalued, would tend to be the target in this case," he said. The U.S. is Japan's biggest export destination and automobile shipments account for roughly 28% of its exports there. Japan is reeling from Trump's 25% duty on cars. Since its announcement on March 26, the benchmark Nikkei share average has slumped 6%. Akazawa offered few details of the initial discussions, but told reporters Trump said getting a deal done with Japan was a "top priority". MAR-A-LAGO ACCORD? The yen has already come off its lows against the dollar. In the middle of last year, the dollar was worth nearly 162 yen for the first time since 1986, the period after the Plaza Accord when Japan, Britain, Germany and France agreed with the U.S. at New York's Plaza Hotel to devalue the dollar. The Mar-a-Lago Accord is a reference to this and Trump's Mar-a-Lago Resort in Florida. This week though, the dollar dipped below 142 yen following a steep slide on fears that Trump's focus on tariffs could trigger U.S. recession. And speculative bets on further yen strength have built up to the highest levels since the Commodity Futures Trading Commission (CFTC) started recording the data in 1986. Trump and Bessent would probably be well advised to bear in mind the current environment before making any strong demands for help weakening the dollar. Unlike in 1985 at the time of the Plaza Accord, international investors hold nearly $15 trillion in U.S. government debt, which has held a special position as the benchmark for risk-free investment returns. The Trump-induced Treasuries rout this month has called those assumptions into question and, while some level of calm has returned to debt markets this week, sentiment is fragile. "We have to remember that the Treasury Secretary is the head salesperson for U.S. Treasuries," said Yunosuke Ikeda, Nomura's Japan head of macro research. "Trying to talk down the dollar would be a very dangerous strategy at the moment, even if Bessent believes in the merits of a weaker currency in the longer term." While the yen remains weak by historical standards and Tokyo also desires a stronger currency, authorities have said they hope to bolster the yen's value through initiatives such as better industrial competitiveness. That may not be the quick fix Trump is angling for. Nor can the Bank of Japan be called on to hurry rate hikes along. Rising borrowing costs and inflation are both pain points for voters, and crucial upper house elections loom in July. "The Japanese side is going to say the BOJ is independent, and they are not trying to manipulate the currency," said Shoki Omori, chief desk strategist at Mizuho Securities. "After all, we're in a tightening cycle." (Reporting by Kevin Buckland in Tokyo; Editing by Vidya Ranganathan and Lincoln Feast.)
Reuters
17-04-2025
- Business
- Reuters
Why the yen is the wrong gambit in any US-Japan trade row
Summary Trump's currency demands could threaten Japan's economic recovery, central bank independence Intervening to strengthen yen would require hefty selling of Treasuries Talking down the dollar is a dangerous strategy with market sentiment fragile TOKYO, April 17 (Reuters) - U.S. President Donald Trump's desire for a stronger yen against the dollar is almost certain to figure into trade negotiations with Japan underway in Washington, but analysts say any effort to shift the currencies is fraught with risks for both sides. Japan's chief negotiator, economy minister Ryosei Akazawa, got talks started on Wednesday by meeting with U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson, with Trump also making a surprise appearance. The White House put the exchange rate unequivocally on the agenda after Trump last month accused Tokyo of pursuing a policy to devalue the yen, giving the Japanese an unfair trade advantage. The yen didn't figure into Wednesday's negotiations, Akazawa said, but currency issues are more naturally a discussion for Finance Minister Katsunobu Kato, who will have his own round of talks with Bessent when he arrives in Washington next week for International Monetary Fund and World Bank meetings. Analysts warn that any deal on where the dollar should trade versus the yen is inherently tricky. An attempt by Tokyo to force the Bank of Japan into speeding up rate hikes could push up the yen, but risks snuffing out Japan's fledgling economic recovery and tramples on the idea of central bank independence. Japanese officials could also sell U.S. dollars for yen, but that would mean pulling out billions of dollars it has invested in U.S. debt at a time when markets are particularly fragile. Citigroup sees Japan as a prime target in the event that the Trump administration takes aim at a coordinated devaluation of the dollar to make the United States more competitive globally, a proposal dubbed the "Mar-a-Lago Accord". "At this point we do not see a 'Mar-a-Lago Accord' as a concrete risk," Citigroup currency strategist Osamu Takashima said in a research note. However, "countries such as Japan, which have sizeable foreign currency reserves and whose currency is undervalued, would tend to be the target in this case," he said. The U.S. is Japan's biggest export destination and automobile shipments account for roughly 28% of its exports there. Japan is reeling from Trump's 25% duty on cars. Since its announcement on March 26, the benchmark Nikkei share average (.N225), opens new tab has slumped 6%. Akazawa offered few details of the initial discussions, but told reporters Trump said getting a deal done with Japan was a "top priority". MAR-A-LAGO ACCORD? The yen has already come off its lows against the dollar. In the middle of last year, the dollar was worth nearly 162 yen for the first time since 1986, the period after the Plaza Accord when Japan, Britain, Germany and France agreed with the U.S. at New York's Plaza Hotel to devalue the dollar. The Mar-a-Lago Accord is a reference to this and Trump's Mar-a-Lago Resort in Florida. This week though, the dollar dipped below 142 yen following a steep slide on fears that Trump's focus on tariffs could trigger U.S. recession. And speculative bets on further yen strength have built up to the highest levels since the Commodity Futures Trading Commission (CFTC) started recording the data in 1986. Trump and Bessent would probably be well advised to bear in mind the current environment before making any strong demands for help weakening the dollar. Unlike in 1985 at the time of the Plaza Accord, international investors hold nearly $15 trillion in U.S. government debt, which has held a special position as the benchmark for risk-free investment returns. The Trump-induced Treasuries rout this month has called those assumptions into question and, while some level of calm has returned to debt markets this week, sentiment is fragile. "We have to remember that the Treasury Secretary is the head salesperson for U.S. Treasuries," said Yunosuke Ikeda, Nomura's Japan head of macro research. "Trying to talk down the dollar would be a very dangerous strategy at the moment, even if Bessent believes in the merits of a weaker currency in the longer term." While the yen remains weak by historical standards and Tokyo also desires a stronger currency, authorities have said they hope to bolster the yen's value through initiatives such as better industrial competitiveness. That may not be the quick fix Trump is angling for. Nor can the Bank of Japan be called on to hurry rate hikes along. Rising borrowing costs and inflation are both pain points for voters, and crucial upper house elections loom in July. "The Japanese side is going to say the BOJ is independent, and they are not trying to manipulate the currency," said Shoki Omori, chief desk strategist at Mizuho Securities. "After all, we're in a tightening cycle."
Yahoo
17-04-2025
- Business
- Yahoo
Analysis-Why the yen is the wrong gambit in any US-Japan trade row
By Kevin Buckland TOKYO (Reuters) - U.S. President Donald Trump's desire for a stronger yen against the dollar is almost certain to figure into trade negotiations with Japan underway in Washington, but analysts say any effort to shift the currencies is fraught with risks for both sides. Japan's chief negotiator, economy minister Ryosei Akazawa, got talks started on Wednesday by meeting with U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson, with Trump also making a surprise appearance. The White House put the exchange rate unequivocally on the agenda after Trump last month accused Tokyo of pursuing a policy to devalue the yen, giving the Japanese an unfair trade advantage. The yen didn't figure into Wednesday's negotiations, Akazawa said, but currency issues are more naturally a discussion for Finance Minister Katsunobu Kato, who will have his own round of talks with Bessent when he arrives in Washington next week for International Monetary Fund and World Bank meetings. Analysts warn that any deal on where the dollar should trade versus the yen is inherently tricky. An attempt by Tokyo to force the Bank of Japan into speeding up rate hikes could push up the yen, but risks snuffing out Japan's fledgling economic recovery and tramples on the idea of central bank independence. Japanese officials could also sell U.S. dollars for yen, but that would mean pulling out billions of dollars it has invested in U.S. debt at a time when markets are particularly fragile. Citigroup sees Japan as a prime target in the event that the Trump administration takes aim at a coordinated devaluation of the dollar to make the United States more competitive globally, a proposal dubbed the "Mar-a-Lago Accord". "At this point we do not see a 'Mar-a-Lago Accord' as a concrete risk," Citigroup currency strategist Osamu Takashima said in a research note. However, "countries such as Japan, which have sizeable foreign currency reserves and whose currency is undervalued, would tend to be the target in this case," he said. The U.S. is Japan's biggest export destination and automobile shipments account for roughly 28% of its exports there. Japan is reeling from Trump's 25% duty on cars. Since its announcement on March 26, the benchmark Nikkei share average has slumped 6%. Akazawa offered few details of the initial discussions, but told reporters Trump said getting a deal done with Japan was a "top priority". MAR-A-LAGO ACCORD? The yen has already come off its lows against the dollar. In the middle of last year, the dollar was worth nearly 162 yen for the first time since 1986, the period after the Plaza Accord when Japan, Britain, Germany and France agreed with the U.S. at New York's Plaza Hotel to devalue the dollar. The Mar-a-Lago Accord is a reference to this and Trump's Mar-a-Lago Resort in Florida. This week though, the dollar dipped below 142 yen following a steep slide on fears that Trump's focus on tariffs could trigger U.S. recession. And speculative bets on further yen strength have built up to the highest levels since the Commodity Futures Trading Commission (CFTC) started recording the data in 1986. Trump and Bessent would probably be well advised to bear in mind the current environment before making any strong demands for help weakening the dollar. Unlike in 1985 at the time of the Plaza Accord, international investors hold nearly $15 trillion in U.S. government debt, which has held a special position as the benchmark for risk-free investment returns. The Trump-induced Treasuries rout this month has called those assumptions into question and, while some level of calm has returned to debt markets this week, sentiment is fragile. "We have to remember that the Treasury Secretary is the head salesperson for U.S. Treasuries," said Yunosuke Ikeda, Nomura's Japan head of macro research. "Trying to talk down the dollar would be a very dangerous strategy at the moment, even if Bessent believes in the merits of a weaker currency in the longer term." While the yen remains weak by historical standards and Tokyo also desires a stronger currency, authorities have said they hope to bolster the yen's value through initiatives such as better industrial competitiveness. That may not be the quick fix Trump is angling for. Nor can the Bank of Japan be called on to hurry rate hikes along. Rising borrowing costs and inflation are both pain points for voters, and crucial upper house elections loom in July. "The Japanese side is going to say the BOJ is independent, and they are not trying to manipulate the currency," said Shoki Omori, chief desk strategist at Mizuho Securities. "After all, we're in a tightening cycle." Sign in to access your portfolio
Yahoo
04-04-2025
- Business
- Yahoo
After tariff shock, Trump may weaponise finance against allies
By Francesco Canepa and John O'Donnell FRANKFURT (Reuters) -With the ink still fresh on U.S. President Donald Trump's latest batch of tariffs, some are already bracing for what may come next in his effort to strong-arm trading partners into doing his bidding. As the epicentre of the financial world and the issuer of the global reserve currency, the United States has a number of levers that Trump can pull to coerce other countries, from credit cards to the very provision of dollars to foreign banks. While deploying these unconventional weapons would come at a large cost for the U.S. itself and may even backfire altogether, observers say such doomsday scenarios should not be discarded. This would be particularly true if tariffs do not succeed in reducing the U.S. trade deficit with the rest of the world - an outcome many economists see as plausible given the fact that near-full employment in the U.S. has led to deep labour shortages. China retaliated on Friday, sending U.S. stocks tumbling further, deepening the crisis. "I could well imagine that Mr. frustrated and he does try to implement wacky ideas, even if the logic for them is not there," said Barry Eichengreen, professor of economics and political science at the University of California, Berkeley. MAR-A-LAGO ACCORD The U.S. administration's not-so-secret plan is to rebalance trade by weakening the dollar. A way to do that would be to enlist foreign central banks in a coordinated effort to revalue their own currencies. According to a paper by Trump's pick to chair his Council of Economic Advisers, Stephen Miran, this may happen as part of a Mar-a-Lago accord, a reference to the dollar-capping Plaza Accord of 1985 and to Trump's resort in Florida. The November paper suggested the United States would use the threat of tariffs and the lure of U.S. security support to persuade foreign countries to appreciate their currencies against the dollar, among other concessions. But economists are sceptical any such deal would gain traction in Europe or China because the economic and political situation is so different now from four decades ago. "I think that's a really unlikely scenario," Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics, said. Obstfeld argued tariffs had already been imposed, removing their use as a threat, and the United States' commitment to global security had been weakened by its ambiguity on Ukraine. He added central bankers in the euro zone, Japan and Britain were unlikely to yield to a deal that would see them forced to raise interest rates and risk a recession. And TS Lombard chief economist Freya Beamish argued that engineering a stronger yuan would also go against China's need to reflate its struggling economy. Even in Japan, where the government has repeatedly intervened in the currency market over the past few years to prop up the yen, memories of 25 years of deflation that only recently ended may temper any enthusiasm for strong yen appreciation. DOLLAR BACKSTOP If an accord can't be reached, Trump's administration might be tempted to use more aggressive tactics, such as harnessing the dollar's status as the currency in which the world trades, saves and invests. This may take the shape of threatening to turn off the Federal Reserve's taps for foreign central banks, which allows them to borrow dollars in return for collateral in their own currency, according to Obstfeld and some supervisors and central bankers. This is an essential source of funding at times of crisis, when money markets seize up and investors retrench to the safety of the dollar. Taking it away would upset a multi-trillion market for dollar credit outside of the United States and hit banks in Britain, the euro zone and Japan particularly hard. Of course, these so-called swap lines are firmly in the Fed's hands and Trump has never signalled it wanted to take control of powerful monetary institution. But his recent moves to replace key personnel, including at regulatory agencies, have unnerved observers. "It is no longer inconceivable that in a bigger negotiation this could serve as a nuclear threat," Spyros Andreopoulos, founder of the Thin Ice Macroeconomics consultancy, said. He thought such a move would over time erode the dollar's status as a reliable global currency. CREDIT CARDS The United States has another ace up its sleeve - its payment giants, including credit card companies Visa and Mastercard. While Japan and China have to varying degrees developed their own electronic means of payment, the two U.S. firms process two-thirds of card payments made in 20-nation euro zone. Mobile phone app payments, dominated by U.S. firms such as Apple and Google make up almost one-tenth of retail payments. This shift has put Europeans on the back foot in a vast market, worth more than 113 trillion euros ($124.7 trillion dollars) in the first six months of last year. Were Visa and Mastercard to be pressured into pulling the plug on services, as they did in Russia shortly after it invaded Ukraine, Europeans would have to use cash or cumbersome bank transfers to shop instead. "That the U.S. has turned hostile is a huge setback," Maria Demertzis, chief economist for Europe at the Conference Board think tank, said. The European Central Bank has said this exposed Europe to the risk of "economic pressure and coercion" and a digital euro may be a solution. But the plans to roll out this digital currency have become bogged down in discussion and may take years to introduce. European officials are considering how they could respond to Trump's actions but are wary of triggering a further escalation. They could impose tariffs of their own or resort to more drastic measures, such as limiting U.S. banks' access to the European Union. Taking such radical steps could, however, be hard because of the international clout of Wall Street, as well as the risk of a backlash against European lenders doing business in the U.S. Still, some international bank executives told Reuters that they were concerned about the threat of blowback from Europe in the coming months. (Additional reporting by Leika Kihara in Tokyo and Sinead Cruise and Stefania Spezzati in London)
Zawya
04-04-2025
- Business
- Zawya
After tariff shock, Trump may weaponise finance against allies
FRANKFURT - With the ink still fresh on U.S. President Donald Trump's latest batch of tariffs, some are already bracing for what may come next in his effort to strong-arm trading partners into doing his bidding. As the epicentre of the financial world and the issuer of the global reserve currency, the United States has a number of levers that Trump can pull to coerce other countries, from credit cards to the very provision of dollars to foreign banks. While deploying these unconventional weapons would come at a large cost for the U.S. itself and may even backfire altogether, observers say such doomsday scenarios should not be discarded. This would be particularly true if tariffs do not succeed in reducing the U.S. trade deficit with the rest of the world - an outcome many economists see as plausible given the fact that near-full employment in the U.S. has led to deep labour shortages. "I could well imagine that Mr. frustrated and he does try to implement wacky ideas, even if the logic for them is not there," said Barry Eichengreen, professor of economics and political science at the University of California, Berkeley. MAR-A-LAGO ACCORD The U.S. administration's not-so-secret plan is to rebalance trade by weakening the dollar. A way to do that would be to enlist foreign central banks in a coordinated effort to revalue their own currencies. According to a paper by Trump's pick to chair his Council of Economic Advisers, Stephen Miran, this may happen as part of a Mar-a-Lago accord, a reference to the dollar-capping Plaza Accord of 1985 and to Trump's resort in Florida. The November paper suggested the United States would use the threat of tariffs and the lure of U.S. security support to persuade foreign countries to appreciate their currencies against the dollar, among other concessions. But economists are sceptical any such deal would gain traction in Europe or China because the economic and political situation is so different now from four decades ago. "I think that's a really unlikely scenario," Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics, said. Obstfeld argued tariffs had already been imposed, removing their use as a threat, and the United States' commitment to global security had been weakened by its ambiguity on Ukraine. He added central bankers in the euro zone, Japan and Britain were unlikely to yield to a deal that would see them forced to raise interest rates and risk a recession. And TS Lombard chief economist Freya Beamish argued that engineering a stronger yuan would also go against China's need to reflate its struggling economy. Even in Japan, where the government has repeatedly intervened in the currency market over the past few years to prop up the yen, memories of 25 years of deflation that only recently ended may temper any enthusiasm for strong yen appreciation. DOLLAR BACKSTOP If an accord can't be reached, Trump's administration might be tempted to use more aggressive tactics, such as harnessing the dollar's status as the currency in which the world trades, saves and invests. This may take the shape of threatening to turn off the Federal Reserve's taps for foreign central banks, which allows them to borrow dollars in return for collateral in their own currency, according to Obstfeld and some supervisors and central bankers. This is an essential source of funding at times of crisis, when money markets seize up and investors retrench to the safety of the dollar. Taking it away would upset a multi-trillion market for dollar credit outside of the United States and hit banks in Britain, the euro zone and Japan particularly hard. Of course, these so-called swap lines are firmly in the Fed's hands and Trump has never signalled it wanted to take control of powerful monetary institution. But his recent moves to replace key personnel, including at regulatory agencies, have unnerved observers. "It is no longer inconceivable that in a bigger negotiation this could serve as a nuclear threat," Spyros Andreopoulos, founder of the Thin Ice Macroeconomics consultancy, said. He thought such a move would over time erode the dollar's status as a reliable global currency. CREDIT CARDS The United States has another ace up its sleeve - its payment giants, including credit card companies Visa and Mastercard. While Japan and China have to varying degrees developed their own electronic means of payment, the two U.S. firms process two-thirds of card payments made in 20-nation euro zone. Mobile phone app payments, dominated by U.S. firms such as Apple and Google make up almost one-tenth of retail payments. This shift has put Europeans on the back foot in a vast market, worth more than 113 trillion euros ($124.7 trillion dollars) in the first six months of last year. Were Visa and Mastercard to be pressured into pulling the plug on services, as they did in Russia shortly after it invaded Ukraine, Europeans would have to use cash or cumbersome bank transfers to shop instead. "That the U.S. has turned hostile is a huge setback," Maria Demertzis, chief economist for Europe at the Conference Board think tank, said. The European Central Bank has said this exposed Europe to the risk of "economic pressure and coercion" and a digital euro may be a solution. But the plans to roll out this digital currency have become bogged down in discussion and may take years to introduce. European officials are considering how they could respond to Trump's actions but are wary of triggering a further escalation. They could impose tariffs of their own or resort to more drastic measures, such as limiting U.S. banks' access to the European Union. Taking such radical steps could, however, be hard because of the international clout of Wall Street, as well as the risk of a backlash against European lenders doing business in the U.S. Still, some international bank executives told Reuters that they were concerned about the threat of blowback from Europe in the coming months. (Additional reporting by Leika Kihara in Tokyo and Sinead Cruise in London;)
