Wednesday, November 22, 2006

IMF: Let Us Watch Your Foreign Exchange

Japan rebuffed a U.S. campaign to introduce a foreign exchange surveillance role for the International Monetary Fund.

Washington is attempting to enlist the IMF to police foreign exchange rates and get Asian countries to loosen controls on currencies that American policy makers say are fueling a record U.S. trade deficit.

But Japan and China have opposed any effort to give the IMF the power to blame any particular nation or region for lopsided flows of trade and investment.

"It's not appropriate for the IMF to discuss levels of foreign exchange rates," the Japanese finance minister, Koji Omi, told a news conference in Melbourne following a meeting of Group of 20 finance chiefs and central bankers.

Foreign exchange rates "are currently being determined by market forces," he added.

Robert Kimmitt, deputy secretary at the U.S. Treasury, said Friday in Melbourne that there "is now broad consensus the IMF needs to improve its surveillance, particularly over exchange rates. This means rewriting the IMF rules on exchange rate surveillance."

G20 finance ministers and central bankers discussed the IMF's role in policing exchange rates "with the greatest caution," Finance Minister Peer Steinbr├╝ck of Germany said Sunday. "Such a review, which should have as a goal that foreign exchange rates should be strongly market-driven, cannot be the subject of political speculation or action," Steinbr├╝ck said.

The heads of the three U.S. automaking companies last week pressed President George W. Bush to take action on the yen, saying that the Japanese currency was artificially low and impeding their recovery.

The Detroit automakers maintain that a "systemically undervalued" yen is helping Japan maintain a "significant" automotive trade-balance surplus, Rick Wagoner, chief executive of General Motors, said Tuesday.

GM, Ford Motor and DaimlerChrysler's Chrysler unit have all been posting losses this year as they continue to shed U.S. market share to Japanese automakers like Toyota Motor and Honda Motor.

The yen is at its lowest level against the currencies of Japan's biggest trading partners since 1985, according to a Bank of Japan index.

The currency's 5.2 percent decline against the dollar and a 5.5 percent drop versus the euro over the past six months have helped drive the country's longest postwar economic expansion.

Separately, 48 percent of 46 traders, strategists and investors surveyed by Bloomberg before the weekend G-20 meeting advised buying the dollar against the yen this week. Forty-six percent recommended buying the dollar versus the euro.

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