Forget Japan - China Is Still in Treasury's Crosshairs

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Much has been said in the popular press about the recent semi-annual Treasury FX report (officially Report to Congress on International Economic and Exchange Rate Policies) and how it has targetted Japan for its unilateral interventions, while again choosing not to label China a currency manipulator. See for example Reuters article. This view is not completely without merit. Indeed, when Japan last intervened in the FX markets in 2004, the Treasury described the actions purely factually without divulging an opinion. Compared to that, the current treatment does seem somewhat negative:

"...the United States did not support these interventions. It is worth noting that these operations took place at a time when foreign exchange market activity and risk aversion were being predominantly influenced by financial developments elsewhere in the global economy that were impacting all of the major currencies." (See full report)

What is important here, however, is that there has been no negative rhetoric out of Washington right after the interventions or immediately before the official publication of the report. Also the language used is still very much benign. In fact, I believe the negative mention of Japan is included to make the report appear as unbiased as possible in order to avoid giving China a chance to complain about its objectivity. And while it was not labeled a currency manipulator for political reasons (as in practice it certainly is) China and not Japan is still the main target for Washington's foreign exchange policy.