South Korea has been excluded from the U.S. Treasury Department’s currency watch list due to its transparent foreign exchange policy for the second consecutive time. In contrast, Japan has been included again after a year.
On the 20th local time, the U.S. Treasury Department announced its semi-annual currency report, which includes seven countries: China, Japan, Taiwan, Malaysia, Singapore, Vietnam, and Germany.
South Korea had been included in the U.S. currency watch list for over seven years since April 2016, but was first dropped from the list in November last year and has been excluded again this time.
Apart from Japan, which has been re-designated, the other six countries were also on the U.S. Treasury Department’s currency watch list in its report last November.
The U.S. Treasury Department compiles this list for in-depth analysis and observation through its semi-annual currency report, monitoring countries that actively intervene in the foreign exchange market to gain unilateral trade advantages with the U.S.
Three criteria are used to designate currency watch countries. These include a trade surplus with the U.S. exceeding $15 billion in goods and services, a current account surplus exceeding 3% of GDP, and a net dollar purchase exceeding 2% of GDP for eight months in twelve months.
If a country meets all three criteria, it is included in the in-depth analysis list for attempting to gain unilateral benefits in trade with the U.S. through artificial intervention in the foreign exchange market.
If two criteria are met, the country is added to the currency watch list. South Korea only meets one of the U.S. Treasury Department’s three criteria: the trade surplus with the U.S. For reference, South Korea has an annual trade surplus of $41 billion with the U.S. In contrast, Japan, with an annual trade surplus of $62 billion and a current account surplus accounting for 3.6% of GDP, was re-designated after a year of exclusion based on the two evaluation criteria.
The U.S. Treasury Department announced, “Japanese foreign authorities intervened in the foreign exchange market for the first time since October 2022 during April and May 2024,” adding, “They bought yen and sold dollars to strengthen the yen.”
The statement further emphasized, “Intervention in a large, freely traded exchange rate market should only occur under very exceptional circumstances following appropriate prior consultation.” It also highlighted, “The Biden administration opposes efforts by U.S. trading partners to unfairly gain an advantage through artificial currency manipulation.”
However, it acknowledged that Japan regularly discloses its monthly foreign exchange market interventions, maintaining a certain level of transparency in transactions. Notably, in this regular exchange rate report, the U.S. Treasury Department intensified its criticism of China, one of the six countries re-designated as currency watch countries, for its blatant intervention in the foreign exchange market.
The report stated, “China, which does not disclose foreign exchange interventions and lacks transparency in its exchange rate policy, has become an outlier among major economies.” It emphasized, “The U.S. Treasury Department needs to continue its meticulous monitoring.”
Since the enactment of the Trade Facilitation Act in 2015, the U.S. has been evaluating the macroeconomic and exchange rate policies of the top 20 countries with significant trade with the U.S., designating them as in-depth analysis or observation countries based on certain evaluation criteria.
