Curious why the USDJPY is in freefall after hours? Thank Jack Lew, and the after the close release of the semi-annual “Report to Congress on International Economic and Exchange Rate Policies.” Traditionally the place where many have looked to see if the US would declare China a currency manipulator (which will never happen for obvious reasons), this time there was a big Easter egg lying in wait for those who did a word search for “competitive devaluation” – namely that it was located in the section discussing Japan.
In order to support a stronger economic recovery and increase potential growth, it is important that Japan take fundamental and thoroughgoing steps to increase the dynamism of the domestic economy, by easing regulations that unduly deter competition in its domestic economy. Macroeconomic stimulus will be supportive in the short-term but cannot be a substitute for structural reform that raises productivity and trend growth. 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.
“Refrain from competitive devaluation” – the last thing anyone who was long the USDJPY into the weekend wants to hear. Which is precisely why suddenly far fewer wanted to be long the USDJPY, which has crashed 50 pips in the last few minutes and is in literal freefall on this very confusing report, according to which it is not ok for Japan to print $80 billion per month, but it is perfectly ok for the US.