Donald Trump's accusation that Japan manipulates its currency doesn't appear likely to play into any negotiation leverage as the president meets with Prime Minister Shinzo Abe this week.
Trump's accusation was unexpected.
"Every other country lives on devaluation," Trump said late last month, according to multiple media reports. "You look at what China's doing, you look at what Japan has done over the years. ... They play the money market, they play the devaluation market and we sit there like a bunch of dummies."
It is unclear what Trump meant by "devaluation market."
The yen has dropped sharply since Trump's surprise election, with the dollar fetching more than 118 yen earlier this year, compared with levels around 102 yen before the vote. But analysts generally attribute the move to a sudden surge in the dollar amid expectations inflation would rise and spur the U.S. Federal Reserve to hike interest rates further.
Japanese policymakers quickly pushed back against the accusation, noting the Bank of Japan's (BOJ) policy, which includes a massive quantitative easing program, was aimed at spurring inflation and economic growth, not at weakening the yen.
Many analysts found the accusation against Japan unwarranted.
"Where's he been, this guy," asked Edwin Merner, president at Atlantis Investment Research, based in Japan. Merner noted that the accusation appeared recycled from headlines more than 20 years ago. "This is crazy talk."
But the Trump comments have spurred the expectation that discussions over the yen would be on the table when the president and Abe meet Feb. 10-11, both at the White House and at the U.S. president's country club in Florida, Mar-a-Lago, a mix of a private club owned by the Trump Organization and a separate private residence. The White House did not immediately return an email requesting information on the financial arrangements for the meeting.
The visit comes as relations between the U.S. and its long-running ally Japan may have already taken a chill after Trump pulled out of the Trans-Pacific Partnership (TPP) trade deal.
But whether Trump's comments were in earnest, were just a talking point or were meant as a negotiating tool, attempts to force Japan to change its monetary policy don't appear likely to bear much fruit, analyst said.
"The Abe administration is unlikely in our view to be able to accept any deal that constrains the BOJ's monetary policy or foreign-exchange movement driven by fundamentals," analysts at Bank of America-Merrill Lynch said in a note on Monday.
They expected any such deal would destabilize Abe's administration as it would be seen negatively by his supporters and as the Japanese economy wasn't strong enough to take an exchange-rate shock.