“This intervention brings things back into alignment closer to where most people think that the exchange rate should be over the long term,” says Amb. Kurt Tong, TAG managing partner and former U.S. deputy treasury attaché in Tokyo, in an interview with CNN International’s Newsroom with Rosemary Church (8/4) on Japan-U.S. joint currency intervention.
“This will help ease market pressure and instability and allow the government to focus on other means of promoting growth.”
Here’s the full transcript of the interview:
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CNN: With Japan’s economy still facing a number of long term challenges, let’s bring in Ambassador Kurt Tong, who is a managing partner at The Asia Group and a former U.S. ambassador to APEC, the Asia Pacific Economic Cooperation. Thank you so much for joining us.
Amb. Kurt Tong: Glad to be here.
CNN: So you were the assistant U.S. treasury attaché in Tokyo back in 1998, when there was a joint intervention. What are the global market implications for this? Japan-U.S. joint currency intervention?
Amb. Kurt Tong: Well, as I think you know, the joint interventions are much more impactful on the market than unilateral interventions by one country, especially when in the case of Japan, which was trying desperately to keep the yen from falling further, there’s a temptation for markets to just continue to test those unilateral interventions. But a joint intervention like this one can be more impactful. And so far it’s held for a few days.
CNN: So what does Japan get out of this exactly? And how do you expect the Japanese stock market will react to this intervention over the next few days?
Amb. Kurt Tong: Well, the weakness of the yen was really creating inflation problems for the Japanese consumer. It was a sustained weakness. And that was creating consumer sentiment problems that were then slowing down economic growth overall, creating a bit of distress in financial markets in Japan. So this intervention brings things back into alignment closer to where most people think that the exchange rate should be over the long term. That will help ease market pressure and instability and allow the government to focus on other means of promoting growth.
CNN: And what’s in it for the United States? And are there any negatives attached to this joint intervention for the U.S.?
Amb. Kurt Tong: Well, for the U.S., I think the U.S. was becoming concerned that Japan, in order to prop up the yen, would sell so many U.S. bonds that it would start to have an impact on U.S. markets, you know, selling those U.S. bonds in order to buy the yen. So having the U.S., which has relatively bottomless supply of dollars, to intervene, it makes sense to stabilize U.S. bond markets as well. So that’s, I think, the biggest reason for the United States in the background.
There’s also, I think, a sense that if the yen gets too weak, it could increase the size of the trade deficit with Japan by making Japanese goods more competitive. That’s a secondary consideration. But I think it was also in the U.S.’s mind in terms of downsides. Well, there aren’t really that many unless the market tests the United States. And it turns out that the U.S. intervention is insufficient to change market trends. And that would lead to a loss of credibility for the treasury.
CNN: And what’s Japan’s role in enhancing its defense team work with the United States, despite U.S. policy drift?
Amb. Kurt Tong: Well, overall, the U.S.-Japan relationship is actually in a very good place. The Trump administration started out hard on tariffs, as you know, and Japan was not excluded from that aggressive action. There was a concern back last year that the U.S.-Japan relationship would be damaged by that unilateral action. Instead, Japan responded with relative equanimity, also joined an investment initiative with the United States to try and increase Japanese investment in the United States.
That, um, patience, if you will, with the U.S. and with U.S. policy under President Trump, has led to President Trump in turn really trusting Japan and seeing it as perhaps its most reliable and important partner overseas.
CNN: And how strong is the relationship between President Trump and Prime Minister Takaichi do you think?
Amb. Kurt Tong: Well, the president says positive things about the prime minister on a regular basis. Just yesterday he said a lot about how much he values the partnership with Japan. And based on that, the two countries have done quite a lot to strengthen military cooperation, other aspects of defense, and perhaps most importantly, the two countries are really working closely together on economic, so-called economic security issues like trying to increase the resilience of supply chains and lessen the dependency on important inputs from China, given the fact that both governments in Washington and Tokyo tend to distrust Beijing.