BOJ Veteran Has Lesson for China on Bending to U.S. on Currency

(Bloomberg) -- China may want to think twice before acquiescing to any possible U.S. pressure on the yuan to diffuse trade frictions with the Trump administration.

That’s the view of former Bank of Japan deputy governor Kazumasa Iwata, who was a government official in Tokyo in the 1980s when Japan signed the Plaza Accord to help weaken the U.S. currency. The yen strengthened far more than Japanese policy makers anticipated, wounding its exporters.

While Japan and China are fierce historical rivals, they’ve both found themselves in the cross hairs of the U.S. on trade. Iwata, 71, had no hesitation sharing some of his experiences with Yi Gang, China’s newly appointed central bank chief, during a panel session at the Boao Forum on Wednesday.

Iwata noted that as well as the currency deal, Japan had implemented voluntary export restraints and increased investment in the U.S. to raise output and employment there. His one-word summary of the impact of the Plaza Accord on Japan: "Unfortunate."

Earlier on the panel, Yi, 60, said China’s current exchange rate mechanism was "working very well" and will continue to do so.

Note: At the Plaza Hotel in 1985, the U.S. and its four industrial-nation allies (Japan, France, Germany and the U.K.) struck a deal to bring down the sky-high dollar through concerted selling on the currency market. It ended up going far further than Japan would have liked.

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