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Senate Bill Could Pressure Yen and Carry Trades-Treasury: China Not Manipulator
Senate Finance Committee Chairman Max Baucus, Sen. Charles Grassley, Sen. Charles Schumer and Sen. Lindsey Graham schedule a news conference for 1:30PM EDT on Wednesday "to discuss the new US responses their bill requires when other nations, including China, unfairly undervalue their currency." They say that they will reveal complete details of their bill on Wednesday. They add that the bill will address all countries with "fundamentally misaligned currencies." This bill (to be introduced this month) will “mandate the US Treasury to intervene in global markets if currencies become fundamentally "misaligned." More specifically, the coalition reportedly believes that the administration’s opposition to currency market intervention has not only failed to sway Chinese government thinking but has also “inhibited co-ordinated policy action through the Group of Seven industrialised nations over other weak currencies such as the JPY.” This mention of the JPY could be very important because it indicates that Senators were swayed by the arguments of US manufacturers during the April hearings over Chinese and Japanese currency policy. A bi-partisan coalition seems intent on putting pressure on the White House to make a fundamental shift in its thinking towards currency market intervention. The Treasury’s upcoming semi-annual report on overseas currency practices could therefore provide the catalyst for some fresh activity on this particular front. It's fairly obvious that this bill will be partially aimed at the Yen, which is one of the currencies considered to be "fundamentally mis-aligned" (Read "Weak") This type of effort has the potenetial to cause some serious appreciation in the Yen and therefore, serious downward pressure in the JPY crosses and carry trades.