Stronger JPY against the USD would not solve US trade deficit with Japan - Nomura

Analysts at Nomura note that the recently concluded US-Japan summit at least went off smoothly as the Japanese side had been concerned that the US might make an issue of its trade deficit with Japan and criticize Japan for adopting policies that favored a weaker yen.

Key Quotes

“However, the subject was apparently not raised. That said, we cannot be certain that it will not be raised in future.”

“It has been estimated that the real GDP of the two countries has a significant impact on the US trade deficit with Japan. What is more, a stronger yen against the dollar tends to make the US trade deficit worse. This is contrary to popular belief. While such estimates should be taken with a pinch of salt, it is probably fair to say that a stronger yen against the dollar would be unlikely to lead to a significant improvement in the US trade balance.”

“It appears to us that there is mounting interest in the US about its trade imbalance. While China is likely to be the main target, it should take a little more time to tell whether Japan will also be targeted. If trade relations between the US and Japan deteriorate, it will be interesting to see whether US demands extend beyond the exchange rate to issues such as the need for Japan to stimulate domestic demand and open its markets, and whether Japan switches to different energy suppliers.”