U.S. warns Japan over currency

WASHINGTON (MarketWatch) — The U.S. Treasury on Friday warned Japan not to actively weaken its currency as it again refrained from naming China a manipulator.

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In its twice-a-year assessment of whether any nation is a currency manipulator, Treasury said it will “closely monitor” Japan’s policies and the extent to which they support the growth of domestic demand. The new Shinzo Abe administration has pushed for aggressive bond-buying at the Bank of Japan, and the yen /quotes/zigman/4868099/sampled USDJPY -1.3103% has dropped 13% against the dollar this year. The Japanese currency rose in Friday afternoon trade after the report was released.

“We will continue to press Japan to adhere to the commitments agreed to in the G-7 and G-20, to remain oriented towards meeting respective domestic objectives using domestic instruments and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes,” the Treasury said.

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Shinzo Abe, Japan's prime minister, left, meets with U.S. President Barack Obama in February.

China meanwhile escaped being branded a currency manipulator by the U.S. government, due to an appreciation in the yuan and a drop in its current account surplus.

China hasn’t been named a manipulator since 1994. Both Obama and George W. Bush administrations have been loath to name China a manipulator because of fears of escalating trade tensions.

Since China moved off an exchange-rate peg in June 2010, the renminbi /quotes/zigman/4869230/sampled USDCNY -0.0323% , or yuan, has climbed 10%, the Treasury said in a report. That gain is over 16% in inflation-adjusted terms through February. And China’s current account surplus has shrunk to 2.3% of gross domestic product in 2012 from 10.1% in 2007.

“China has taken a series of steps to liberalize controls on capital movements, as part of a broader plan to move to a more flexible exchange rate regime,” the Treasury said.

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Chinese President Xi Jinping (R) shakes hands with U.S. Secretary of Treasury Jacob Lew (L) during his visit to the Great Hall of the People on March 19, 2013 in Beijing.

“Nonetheless, the available evidence suggests the RMB remains significantly undervalued, intervention appears to have resumed, and further appreciation of the RMB against the dollar is warranted.”

The U.S. did note that China’s reserve accumulation picked up toward the end of 2012 — to $34.7 billion in the fourth quarter, after an average of $21.3 billion in the first three quarters. China held $3.3 trillion in reserves at the end of 2012, or about 40% of GDP.

The U.S. has recorded a $51 billion trade deficit in goods with China through the first two months of the year, far and away its biggest trade gap with any nation. And it isn’t just low-end goods China is shipping: the country is winning increasing market share in advanced U.S. manufacturing, according to a report from the U.S. Business and Industry Council.

The report was due Monday, though the Treasury Department in the past has postponed the report until after international gatherings in the hope of seeing China concessions. The International Monetary Fund and World Bank hold their meetings next week.

(The late Friday release isn't that unusual, however; the last report came a few days after Thanksgiving, and the one before that was also released on a Friday.)

Then again, Federal Reserve Chairman Ben Bernanke has been on the defensive at international gatherings for the central bank’s bond-buying efforts that have weakened the dollar.

The Bank of Japan, the Bank of England and the European Central Bank also have engaged in bond buying