US Treasury Secretary Timothy Geithner yesterday promised to continue pressing China on foreign exchange as the increasingly fraught global row over the value of national currencies intensified.
Mr Geithner was speaking after Japanese Prime Minister Naoto Kan vowed to continue with his country's efforts to reduce the value of the yen, despite warnings in both Europe and the US that such interventions would make it harder to force China to allow its currency to appreciate in value.
Mr Kan rejected such warnings, promising further "resolute action" to bring down the value of the yen. Japan is thought to have sold as much as 1trn yen on Tuesday, following mounting concern about the adverse effects that the rise of the currency against the dollar was having on the country's exporters.
"We will absolutely not allow precipitous movements in the yen," Mr Kan stated, with leading exporters having been encouraged by the falls in the currency, which had been at a 15-year high against the dollar, that the interventions prompted.
In testimony to Congress yesterday, Mr Geithner refused to criticise Japan directly. However, the Treasury Secretary was warned by a number of leading politicians in the US and Europe that Japan's intervention in the currency markets to protect its exporters could jeopardise his efforts to persuade the Chinese to allow the yuan to appreciate. Mr Geithner remains frustrated that Chinese exporters continue to reap an advantage from the artificially low value of the yuan. Although the Chinese government has dropped its official peg to the dollar, it has intervened in currency markets to prevent anything more than a small yuan appreciation.
"We are concerned, as are many of China's trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited," Mr Geithner said.
However, the Treasury Secretary faced criticism from his political opponents for failing to do more. While Mr Geithner promised to look at a "mix of tools" to "encourage the Chinese authorities to move more quickly", he is under pressure to explicitly accuse China of manipulation when he publishes the US's bi-annual foreign exchange report next month.
"There is no question that China manipulates its currency in order to subsidise its exports," said Republican senator Richard Shelby.
"The only question is: why is the administration protecting China by refusing to designate it as a currency manipulator?"