In a shot across the trade war bow with both Japan and Germany, on Tuesday Trump and members of his administration took aim at both Japan and Germany, in addition to China, to accuse them of devaluing their respective currencies, an unexpected move which sent the dollar sliding to multi-month lows. Specifically, on Tuesday morning Trump said: “You look at what China’s doing, you look at what Japan has done over the years. They play the money market, they play the devaluation market and we sit there like a bunch of dummies,” according to a transcript in Congressional Quarterly.
Prior to Trump’s statement, Trump’s top trade advisor, Peter Navarro spoke to the FT, taking aim at Germany, saying it was gaming foreign-exchange markets. His comment sent the EUR surging and precipitated a sharp drop in the dollar. Chancellor Angela Merkel rejected the accusation. At the same time, Donald Tusk, the EU’s president, placed the U. S. alongside Russia, China and terrorism as a source of instability. ‘The change in Washington puts the European Union in a difficult situation, with the new administration seeming to put into question the last 70 years of American foreign policy,’ Tusk said in a letter to European leaders on Tuesday ahead of an EU summit on Feb. 3.
Overnight, it was Japan’s turn, after Prime Minister Shinzo Abe, his main cabinet advisor, Suga, and Japan’s top foreign exchange official on Wednesday all pushed back against Trump’s assertion that Japan is keeping its currency devalued.
“Japan’s monetary policy is for the domestic purpose of beating deflation, and isn’t done with FX in mind, so I think that those remarks are a little bit wide of the mark,’ said Masatsugu Asakawa, the Finance Ministry’s foreign exchange policy chief.
This post was published at Zero Hedge on Feb 1, 2017.