Federal Reserve Chair Janet Yellen declined to criticize Japanese monetary policy or the impact on the dollar-yen exchange rate Tuesday, citing the need for Japan to escape from its 20-year deflationary slough.
Yellen, answering questions from members of the House Financial Services Committee, suggested that Japan’s “quantitative easing” policies, if successful, will be beneficial on the whole not just to Japan but to other countries.
She was also careful in answering a question about whether the dollar’s status as the world’s leading reserve currency is in danger.
“The dollar plays a critical role in the global economy, and it is the Federal Reserve’s job to make sure inflation remains under control so that the dollar remains a safe and sound currency and can continue to play that role,” she said.
Yellen, who was presenting the Fed’s semi-annual Monetary Policy Report to Congress for the first time since succeeding Ben Bernanke on Feb. 1, was pressed hard to say something critical about Japan’s monetary policies.
Congressman Gary Peters (D-Mich.) alleged that Japan is deliberately manipulating the value of the yen down against the dollar to gain an unfair trade advantage.
Yellen responded by referring to past agreements among Group of Seven finance ministers and central bankers, including those of the U.S. and Japan, which essentially said that nations’ monetary policies should be aimed at achieving domestic economic objectives, not at managing exchange rates.
“This is a topic that the G7 has considered, and it has generally come to the conclusion that countries should be allowed to use monetary policy to pursue domestic aims, certainly not to target the value of the currency or to attempt some improvement in their competitive situation, but to address broad economic concerns,” she said.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.