The Telegraph
Since 1st March, 1999
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US wants markets to set Asian currency values

Phuket, Thailand, Sept. 5 (Reuters): US treasury secretary John Snow hammered home today the need for Asian governments to keep their hands off their currencies and let markets decide their value, ending his week in the region as he began it.

Snow's tough message reflects the political threat to President George W. Bush in the run-up to the November 2004 election from the loss of thousands of manufacturing jobs, blamed by Washington on what it sees as unfairly cheap Asian currencies.

The US treasury chief pointed to a communique issued at the close of a two-day meeting of 21 regional finance ministers as evidence of progress in his campaign to persuade Asia to allow its currencies to rise.

“Our agreement that flexible exchange rates are necessary to promote orderly and balanced external adjustments is significant,” Snow said in prepared remarks for a closing news conference of the Asia-Pacific Economic Cooperation (APEC) forum.

“This principle is an essential first step toward the universal acceptance of market-based, freely floating currencies,” Snow said. “We should move quickly to build upon this initial foundation of agreement.”

Yet diplomats said the APEC statement was more of a draw than a victory for Washington. China, the main target of Snow's pressure, took heart from an accompanying reference in the communique to “appropriate” exchange rate policies — code for endorsement of China's semi-fixed exchange rate.

“I believe this is a correct assessment,” Jiwei Lou, China's vice-finance minister, told the news conference.

At talks in Beijing earlier this week, Chinese leaders reaffirmed their long-standing commitment to relax their grip on the exchange rate when the time was ripe — but not yet.

With the election looming large, this seems to be not good enough for Bush.

In a CNBC interview, Bush said Snow used the Beijing meetings to “deliver a strong message from the administration that we expect our trading partners to treat our people fairly — our producers and workers and farmers and manufacturers — and we don't think we're being treated fairly when a currency is controlled by the government”.

US patience with Japan's currency policies also seems to be wearing thin. Washington has turned a blind eye in recent months to record currency market intervention by Tokyo aimed at encouraging a recovery in Japan's export-dependent economy and helping the re-election chances of Prime Minister Junichiro Koizumi. The Japanese leader is a Bush ally who has supported US policy on Iraq and North Korea.

But Canadian Finance Minister John Manley said that Snow would be keen to discuss Japan's intervention policy at this month's meeting of leading industrialised countries in Dubai.

“I think he'll want to talk about the Japanese. We know that one of the purposes of his trip to Japan was to include some discussion on that,” said Manley, who is also on the southern Thai resort island of Phuket.

Dealers reported determined intervention by the Bank of Japan on Thursday to prevent the yen from approaching the key level of 115 to the dollar. The Japanese central bank has spent nearly $80 billion this year, a record, to brake the yen's rise.

Manley's comments pushed the yen higher in late morning trade but gains were capped on concern that the Japanese would intervene again if the currency rose too far. At 0615 GMT the dollar was at 116.82 yen.

“We continually turn back to the idea that nobody can really devalue their way to prosperity,” Snow said on Friday without naming a specific country.

Japan's top financial diplomat, Zembei Mizoguchi, declined to comment on Friday on whether authorities had intervened in the currency market a day earlier, saying only that the government's foreign exchange policy was unchanged.

“I have no comment, but there is no change to our stance,” Mizoguchi, vice finance minister for international affairs, said.

Asia has a mix of foreign exchange regimes. China and Malaysia peg their currencies to the dollar, while some others like Japan float their currencies but intervene periodically to prevent destabilising lurches.

The dispute over the yen is not expected to result in trade sanctions, partly because more than half of China's exports come from foreign firms operating there to take advantage of cheap labour to produce everything from computer keyboards to toys.

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