Lawmakers Seize on Taylor's Book to Bash Treasury Over the Yen
By Mark Drajem
March 8 (Bloomberg) -- Democrats say a book by former U.S. Treasury Undersecretary John Taylor proves that the Bush administration went along as Japan tried to hold down the value of the yen, hurting American manufacturers.
In ``Global Financial Warriors,'' published in January, Taylor writes that he acquiesced as Japan sold yen to buy dollars in 2002 and 2003 to help the world's second-largest economy pull out of a decade of anemic growth. The action held down the value of the yen, making Japanese products cheaper on world markets.
``I did not object, as Treasury might have in the past, but I repeated our own views about the merits of keeping intervention at a minimum,'' Taylor, who was at the Treasury from 2001 through early 2005, writes.
Lawmakers, picking up on complaints of Detroit-based General Motors Corp. and other automakers, say Taylor's revelation shows how the U.S. allowed Japan's exporters to get an unfair advantage that they say is still being felt. Their complaints may trigger renewed U.S. pressure on Japan to strengthen the yen.
``This administration decided to help Japan, but this is something that directly hurts our auto industry,'' Democratic Senator Debbie Stabenow of Michigan, said yesterday, referring to Taylor's book. Not only did Japan weaken its currency, ``But we knew it at the time,'' she said.
Value Held Down
The yen actually increased versus the dollar in 2002 and 2003, though the government's policy held down the rise. Japan's government stopped buying dollars in March of 2004.
Before rallying last week, the yen touched a four-year low of 122.19 to the dollar on Jan. 29 this year. The yen climbed to 115.66 per dollar as of 8:22 a.m. in Tokyo compared with 116.06 in New York yesterday.
GM, Dearborn, Michigan-based Ford Motor Co. and Stuttgart, Germany-based DaimlerChrysler AG say that even at 116 yen to the dollar, Japanese automakers are getting what amounts to an $8,000 subsidy per car.
Taylor, an economics professor at Stanford University, defended the Treasury policy, saying that in 2002 and 2003 the U.S. wanted Japan to turn around persistent deflation and restore growth.
``The purpose of the intervention was to get Japan off the deflationary track, and that has been broadly successful,'' Taylor said in an interview. Since early 2004, ``There has been no intervention by the Japanese'' to weaken the yen, he said.
Paulson Comments
U.S. Treasury Secretary Henry Paulson, who traveled to Tokyo this week, rejects claims the yen is being manipulated, and says its value is being set by financial markets.
``The yen is traded in a competitive marketplace, and its value is set there based on underlying fundamentals,'' Paulson said Feb. 10.
The anger among lawmakers -- mostly Michigan Democrats -- about the yen illustrates one way that angst about global competition and the results of the 2006 election are manifesting themselves this year. U.S. manufacturers shed 2.8 million factory jobs in 2001, 2002 and 2003, just the time when Japan acted to keep the yen from rising.
Last year, lawmakers focused their ire primarily on China, saying its currency practices allowed it to run up a record trade surplus with the U.S. Japan is getting added to the mix this year as Democrats representing automakers took over powerful positions in the new Congress.
Levin Plans Hearings
Stabenow earned a spot this year on the Senate Finance Committee, which oversees trade legislation. Yesterday, she introduced legislation that would allow companies to petition for tariffs on imports from countries that keep their currencies depressed, a measure that would target imports from China and Japan, she said.
Spurred by Representative Sander Levin, another Michigan Democrat, the House Ways and Means Committee held a closed-door meeting on currency manipulation in Asia last month.
``Interestingly, in our session, while there was disagreement among the economists as to China, they all agreed as to the weakness of the Japanese currency,'' Levin said in a speech this week.
Levin, who also referred to Taylor's book, is chairman of the House Ways and Means trade subcommittee. He said he would hold public hearings on the yen and suggested that legislation Congress is considering to tackle currency manipulation by China may also be aimed at Japan.
Democrats Write Paulson
House Financial Services Committee Chairman Barney Frank of Massachusetts, Ways and Means Chairman Charles Rangel of New York, Energy and Commerce Committee Chairman John Dingell and Levin wrote Paulson last month to complain that ``a weak yen is a reflection of Japanese government policy.''
Paulson's ``defense of the Japanese and the yen has been absolutely magnificent -- from the Japanese viewpoint,'' Dingell, a Michigan Democrat said in an interview last week. ``Congress is going to continue boiling with outrage.''
U.S.-Japanese trade has almost doubled over the past two decades to $209 billion last year and at times has been a political issue. In the 1980s, U.S. lawmakers smashed Japanese consumer goods on the grounds of the Capitol and threatened an across-the-board 25 percent tariff on Japanese imports because of what they said were policies that kept out American products and favored Japanese products because of a weak yen.
Treasury `Thrilled'
In his book, Taylor says the Treasury was ``thrilled'' in 2001 when Japan began pursuing a policy of ``quantitative easing,'' to try to spur economic growth by increasing the supply of yen in the economy. As one aspect of that policy, Japan bought dollars and sold yen.
``Our policy toward exchange rate intervention in Japan was part of our effort to be supportive of quantitative easing,'' Taylor wrote. ``By not registering our strong objections to the intervention, effectively allowing it to happen, we made it easier for the Japanese to pump up their money supply.''
That hasn't stopped the complaints from automakers, in part because Japan holds $644 billion of U.S. Treasury debt, almost exactly what it held in March 2004.
``They are sitting on this huge amount of currency reserves,'' Mustafa Mohatarem, GM's chief economist, said in an interview. If Japan only buys dollars and never sells them, ``that shows you they are managing their currency,'' he said.
To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net
Last Updated: March 7, 2007 19:40 EST
