Define accommodating monetary policy
On the other hand, countries should be strongly discouraged from purchasing and holding assets denominated in foreign currencies, which is the central, defining tool of currency manipulation.
In this context the United States should insist that currency manipulation be directly addressed in the proposed Trans-Pacific Partnership. goods exports by between billion and billion, supporting 70,000 American jobs from increased exports alone (White House 2010). The job losses stemming from past trade deals must inform continuing negotiations for the Trans-Pacific Partnership, which have proceeded in secret, most recently in Washington and New York (Arirang News 2014, and Brunnstrom 2015). The biggest tool of currency manipulation is the purchase of assets denominated in the currencies of other countries, which is known as currency intervention. This increases the value of the dollar (the exchange rate), and drives down the value of the currency of the country purchasing foreign assets.
In the context of Japan’s continuing currency intervention, other policies implemented by the Abe government and the Bank of Japan have reinforced downward pressures on the yen.
The United States has a large and growing trade deficit with Japan and the 10 other countries in the proposed TPP. Without its massive government holdings of foreign assets, and its continuing and periodic massive purchases of new foreign assets, the government of Japan would have been unable to prevent the yen from adjusting to levels consistent with large trade and current account surpluses.
The rise of the yen and the 2011 Tōhoku earthquake and tsunami combined to push up Japan’s imports and suppress exports, creating a crisis in Japan’s trade and current accounts.
Japan’s current account surplus shrank to .7 billion in 2012 and Japan developed its first global goods trade deficit in more than a decade, which reached .5 billion in that year (IMF 2015).
Without its massive holdings of foreign assets, and its continuing and periodic massive purchases of new foreign assets, the government of Japan would have been unable to prevent the yen from adjusting to levels consistent with trade and current account balances.
The United States needs to include in the TPP and any future trade or investment agreements currency disciplines that would compel Japan and other currency manipulators to divest themselves of excess holdings of foreign assets, or to otherwise be penalized or incur offsets to their currency manipulation.