The US acted in concert with Japan last week to boost the yen as it slipped close to a 40-year low amid a struggling economy and very low interest rates.
This echoes the logic of the Plaza Accord of 1985; signed by the US with its trade partners Japan, the UK, France and Germany, it was aimed at a coordinated weakening of the dollar in aid of America’s export competitiveness.
Washington’s current grouse is that Asian currencies look underpriced. Although China’s yuan is its bugbear, it is Japan that cannot risk losing its US security shield. US President Donald Trump called the joint action “good for the world economy.”
This conflation of US interests with the world’s is par for the Trump course. How it works out is under watch. If Japan liquidates its US Treasury bonds to sell dollars in bulk too quickly, it could push up yields and thus the US government’s cost of finance.
In 1988, Trump bought the hotel in New York where the 1985 pact was signed, hailing it as a “work of art.” It went bust and he sold it in 1995. By then, Japan was probably ruing the deal, given how badly it worked out for its economy. While Tokyo may value US protection highly, it also needs economic-policy autonomy.