US and Japan pledge economic cooperation to weather crisis

Finance minister Taro Aso and US Treasury secretary Janet Yellen say Washington and Tokyo will work together on financial stimulus packages and foreign exchange rates

US and Japan pledge economic cooperation to weather crisis
US Treasury Secretary Janet Yellen said the value of the dollar should be determined by markets, a break from former president Donald Trump's desire for a weaker greenback. File photo by Reuters

(ATF) The US and Japan pledged on February 1 that their top economic priority was getting their economies on track, and vowed to work together to escape the current crisis through bold fiscal measures.

Japanese Finance Minister Taro Aso and US Treasury Secretary Janet Yellen also agreed that it was important to hold close discussions on foreign exchange rates.

Yellen said the US-Japan alliance was important and economic and financial cooperation with Tokyo would deepen, the US Treasury Department said in a statement about the call.

"The secretary conveyed her readiness to work closely with Japan, both bilaterally and multilaterally, to address key regional and global challenges such as the economic response to the Covid-19 pandemic and climate change," the department said in a statement.

Yellen has previously urged the US to “go big” on fiscal stimulus to help it out of the pandemic-racked economic crisis. “Without further action we risk a longer, more painful recession now and longer-term scarring of the economy later,” she said.

Aso had told Japan’s parliament last month that the government’s views on key economic topics were in line with those expressed by Yellen.

THREAT OF INFLATION

Some analysts have cautioned against unbridled stimulus. “The Yellen treasury is embodying the shift toward the abandonment of fiscal orthodoxy, debt monetisation and the evolution of central banking,” Saxo Bank strategist Eleanor Creagh said.

“A profound regime shift in western economies’ fiscal policies, combined with supply side pressures, is a perfect storm for higher inflation,” she added.

Japanese policymakers  will be scrutinising US currency policy under the Biden administration, due to Tokyo's long history of direct intervention in currency markets to address unwelcome yen spikes that hurt exports.

Yellen said the value of the dollar should be determined by markets, a break from former president Donald Trump's desire for a weaker greenback. "The US does not seek a weaker currency to gain competitive advantage and we should oppose attempts by other countries to do so," she said.

During the call, Aso also brought up Japan's desire to move forward with international discussions aimed at reaching a global taxation agreement, he said.

Yellen pledged to re-engage actively on tax in a February 1 call with Italian economy and finance minister Roberto Gualtieri, saying that the "challenges of efficiently and equitably taxing the income of multinational firms needed to be addressed".

With reporting by Reuters

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