WASHINGTON (Reuters) – The U.S. Treasury Department said on Thursday that no major trading partner appeared to have been manipulating its currency in the past year, but added Japan to a foreign exchange “watch list,” along with China, Vietnam, Taiwan, Malaysia, Singapore and Germany, which were on the previous list.
The Treasury Department's semi-annual currency report also found that no major trading partner met all three criteria, leading to an “enhanced analysis” of foreign exchange practices over the four quarters to December 2023.
But countries that meet two criteria – a trade surplus with the United States of at least $15 billion, a global account surplus of more than 3% of GDP, and sustained one-way net purchases of foreign exchange – are automatically added to the list.
The Treasury Department said Japan, Taiwan, Vietnam and Germany all met the criteria for trade surpluses and large current account surpluses.
Singapore met the criteria for engaging in sustained foreign exchange rate intervention and a large current account surplus, and only Malaysia met the criteria for a current account surplus, but once on the list, it takes two currency reporting cycles for it to be dropped.
China has been kept on the watch list because of its huge trade surplus with the United States and because of the lack of transparency surrounding its foreign exchange policies.
“China’s failure to deploy foreign exchange intervention and the broader lack of transparency around key features of its exchange rate mechanism continue to make it an anomaly among major economies and warrant close Treasury monitoring,” the Treasury said in the report.
The report also raises questions about China's reporting of its current account balance data, which showed its surplus falling to 1.4% of GDP in 2023 from 2.5% in 2022. The Treasury said China's balance of payments data published by the State Administration of Foreign Exchange appeared to… Data on the country's trade surplus contradict Chinese customs data and those of other trading partners.
A US Treasury official said the department was trying to understand such “anomalies.”
The Bank of Japan's recent interventions in the foreign exchange market to support the value of the yen were not a factor in the decision to add Japan to the currency watch list, the official said, citing its high trade and current account surpluses.
But the Treasury report said Japan intervened in April and May 2024 – outside the period covered by the report – for the first time since October 2022, buying yen and selling dollars to boost the value of the yen.
The Treasury said Japan was transparent in its foreign exchange operations but added: “Treasury's expectations are that in large, freely traded exchange markets, intervention should be limited only to highly exceptional circumstances with appropriate prior consultations.”
