The U.S. Treasury Department said it will press Japan to refrain from competitive devaluation while stopping short of accusing it of manipulating the yen in a report on exchange rates.

The Treasury will pressure Japan to adhere to international commitments “to remain oriented towards meeting respective domestic objectives using domestic instruments and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes,” the department said in its semi-annual currency report to Congress released in Washington Friday. The report also declined to name China a currency manipulator.

“This is a shot across the BOJ’s bow,” Kit Juckes, a global strategist at Societe Generale SA in London, said in an e-mail. “Everyone still supports Japan’s fight against deflation, but the U.S. would much rather the yen did not weaken significantly further.” 

The Bank of Japan surprised markets on April 4 by doubling monthly bond purchases to almost match the Federal Reserve’s monetary easing, and by setting a two-year horizon for achieving its goal of 2 percent inflation. BOJ Governor Haruhiko Kuroda said Friday there’s no time limit to the stimulus.

The Bank of Japan and Japanese Finance Ministry didn’t answer phone calls Saturday by Bloomberg News.

The yen has depreciated against all 16 of its most-traded peers since April 4, declining 2.2 percent to the U.S. dollar, 3.5 percent to Europe’s 17-nation common currency and 2.8 percent to Australia’s dollar.

“Yen moves have been too rapid for the U.S. to applaud Japan’s battle to end deflation,” said Yasuhide Yajima, chief economist at NLI Research Institute Ltd. in Tokyo, an affiliate of Nippon Life Insurance Co., Japan’s biggest life insurer. “Japan will have to show fiscal plans and means to strengthen growth to make it clear it’s not depending only on weakening the yen to revive the economy.”

The yen traded at 98.37 per dollar at 5 p.m. in New York last night, from 99.68 a day earlier. It lost 0.8 percent this week in its second five-day drop.

Juckes said until recently, the U.S. had been supportive of Japan’s policies. “How could they not be after years of calling for them to combat deflation?” Juckes said. “Now, with the yen falling so far, so fast, the Treasury has changed its tune.”

Japan this month reached a deal with the U.S. on bilateral trade issues that clears the way for the world’s third-largest economy to join talks for the Trans-Pacific Partnership trade agreement as soon as July. The TPP would lower tariffs in countries that account for 40 percent of global trade.

The U.S. is reiterating statements by the Group of Seven and Group of 20 that macroeconomic policies “should be directed at the domestic economy and not at the exchange rate,” said Edwin Truman, a senior fellow at the Peterson Institute for International Economics in Washington.

The U.S. will be “watching to make sure that the focus of Abenomics is on stimulating the domestic Japanese economy and not its external sector,” Truman said, referring to the policies of Japanese Prime Minister Shinzo Abe.

In the report, the Treasury declined to name China a manipulator while saying that the yuan “remains significantly undervalued.”

“Intervention appears to have resumed, and further appreciation of the RMB against the dollar is warranted,” the Treasury said, using another term for the Chinese currency.

The Treasury said it will press China for policy changes and greater exchange-rate flexibility.

The Obama administration’s “refusal to label China a currency manipulator once again demonstrates President Obama’s deep-seated indifference to a major, ongoing threat to American manufacturing’s competitiveness, and to the U.S. economy’s return to genuine health,” Alan Tonelson, research fellow at the U.S. Business and Industry Council, which represents about 2,000 domestic manufacturers, said in a statement. 

(Bloomberg)