Sept. 1 (Bloomberg) -- U.S. Treasury Secretary John Snow, who meets officials in Beijing tomorrow to discuss the case for a stronger Chinese currency, said the global economy operates best when markets set exchange rates that reflect growth. ``We have to make sure that we're heard on the subject of maintaining flexibility on exchange-rate regimes,'' Snow said at a press conference in Tokyo. ``After all, what are exchange rates but a set of signals to the global economy about where resources should flow?''
President George W. Bush is under pressure from U.S. manufacturers and members of Congress to get China and Japan to stop policies aimed at preventing their currencies from rising and keeping their exports cheap. China's yuan is fixed to the dollar and Japan sold record amounts of yen in the first 7 months of the year in an effort to keep exports competitive. Yuan forward contracts rose to match a record today as Snow prepared to travel to China. If freely traded, the yuan would gain to as much as 8.0920 to the dollar, according to Hong Kong trading, from a fixed rate of about 8.3. Contracts later pared gains after Treasury spokesman Tony Fratto said Snow didn't suggest a ``rate for revaluation'' in his talks with Japanese officials. ``Whatever Snow may say, I think he wants a weaker dollar,'' said Steve Barrow, a currency analyst at Bear Stearns Cos. in London. ``I don't see a level in the foreseeable future at which the U.S. will turn that view around.''
Jobs, Exports
China fixed exchange rate means the yuan has tracked the dollar's 8.1 percent drop against a basket of six major currencies in the past year, making Chinese goods cheaper abroad. Snow suggested that there are other ways to help U.S. factory workers, in addition to encouraging China to make its currency more flexible. ``Clearly jobs is a critically important issue, and we need to take initiatives in the United States to make sure we sustain a strong, viable and competitive manufacturing sector,'' Snow said.
The U.S. unemployment rate may have remained at 6.2 percent in August, a government report on Friday will probably show, according to the median of 54 forecasts in a Bloomberg News survey. The rate was 5.7 percent a year ago. The U.S. trade deficit with China grew to $10 billion in June, the highest since November, as imports increased to $12.1 billion, according to a Commerce Department report released last month in Washington. The numbers suggest the trade gap with China this year will surpass the record $103 billion reached in 2002.
Koizumi Meeting
Snow spoke after meeting with Japanese Prime Minister Junichiro Koizumi, Finance Minister Masajuro Shiokawa, Bank of Japan Governor Toshihiko Fukui, Japan's Chief Cabinet Secretary Yasuo Fukuda, and Financial Services Minister Heizo Takenaka. He encouraged Japanese leaders to do more than just increase money supply and cut government spending to raise the economy's growth rate. ``Good monetary and fiscal policy are critically important and are the foundation for a well-functioning economy, but they're a necessary but not a sufficient condition,'' he said. The Treasury secretary held separate talks with Japanese businessmen, including Hiroshi Okuda, head of Japan's largest business group Keidanren and chairman of Toyota Motor Corp.; Minoru Makihara, chairman of Mitsubishi Corp.; Taizo Nishimoro, chairman of Toshiba Corp.; Fujio Mitarai, chief executive officer of Canon Inc.; and Shigemitsu Miki, president of the Bank of Tokyo- Mitsubishi.
Japanese Banks
Snow suggested Japan should focus more on ridding the banking system of problems loans. ``I'd like to see domestic-led growth in Japan play a bigger part,'' he said. ``With that overhang of the non-performing loans, it's a drag on the performance of the economy and prevents the banking system from being able to play a role in increasing monetary aggregates and stimulating growth.'' The Bank of Japan has sold a record amount of yen this year to limit gains that curb exporters' profits. The yen rose 3.1 percent against the dollar and 5.4 percent versus the euro last month, making it the best performing of 17 most-traded currencies tracked by Bloomberg. Japan's currency was at 116.43 to the dollar at 2:09 p.m. in London trading, from 116.92 late Friday in New York, when it strengthened to 116.17, the most in three months.
Stepping Away
The Bank of Japan refrained from selling yen in August for the first time in four months, it said Friday. The central bank, on behalf of the Ministry of Finance, sold a record 9.03 trillion yen ($77.4 billion) in the first seven months of the year to try to stop gains in the currency that threaten exporters' earnings.
``We will intervene if we see the market fluctuates too much or to an excessive level,'' Zembei Mizoguchi, vice finance minister for international affairs, said earlier today. ``On this view, we're taking necessary steps. We're not implementing intervention to weaken the yen.'' Snow is scheduled to meet in Beijing the next two days with finance ministry officials and central bankers, before attending an assembly on Thursday and Friday of the Asia-Pacific Economic Cooperation group in Phuket, Thailand. //www.bloomberg.com