UPDATE 2-Japan says U.S. has not raised FX manipulation in trade talks
* U.S. seeking to make forex part of trade talks
* Tokyo trying to tip-toe around yen, but strategy may notwork
* Japan-U.S. have agreed to trade talks, autos in crosshairs
(Adds details on NAFTA, economist's quote)
By Stanley White
TOKYO, Oct 16 (Reuters) - The U.S. government had not spokento Japan about including provisions in free trade agreements todeter currency manipulation, Japanese Finance Minister Taro Asosaid on Tuesday, although the two sides are likely to entertalks sometime next year.
Aso's comments come after U.S. Treasury Secretary StevenMnuchin said on Saturday that Washington wants to include such
provisions in future trade deals, including the one it willnegotiate with Japan. The new provisions would be based on the currency chapter inWashington's new deal to revamp its trade pact with Canada andMexico, which urges members to refrain from competitivedevaluation.
Mnuchin's remarks have raised concerns that the Japanesegovernment's efforts to keep currency policy separate from freetrade talks are not working, and that it could be dragged into adispute with Washington about the yen's valuation.
"The U.S. side has not brought up the issue of currenciessince we agreed in February last year that these matters wouldbe discussed between Mnuchin and myself," Aso said.
"Our basic position is talks with the U.S. TradeRepresentative don't include currencies," he told reporters.
Aso said Japan and the United States agreed in February lastyear that any issues related to currency policy would bediscussed between him and Mnuchin, keeping them separate fromtalks on trade.
In a bid to jolt its economy out of years of deflation andslow growth, Japan embarked on a ultra-easy monetary stimulus in2013, which also led to a sharp depreciation of the yen,benefitting its exporters.
Currency matters remain a sensitive topic for Japan becauseeven moderate yen appreciation can have a major negative impacton export earnings and tends to hurt corporate sentiment.
Japanese policymakers say a currency chapter similar to theone Washington signed with Mexico and Canada won't bind Tokyobeyond guidelines by the International Monetary Fund to refrainfrom competitive devaluations.
Pressure from the U.S. administration to include such achapter could create a challenge for Prime Minister Shinzo Abe'sreflationist policy, which has rested on a weak yen andaggressive monetary easing.
"The weak yen, and the BOJ's aggressive monetary easing thatcaused it, has been the corner stone of Abenomics," HiroshiShiraishi, senior economist at BNP Paribas Securities, said,referring to Abe's economic policies.
"If that is challenged, that basically means Abenomics willbe challenged and things could go in reverse."
Chief Cabinet Secretary Yoshihide Suga, the Japanesegovernment's top spokesman, did not directly answer questions byreporters on Tuesday about currency provisions.
When asked if Japan would reject such provisions in tradetalks with the United States, Suga said Tokyo's position was thesame as it always has been but did not elaborate.
Mnuchin has expressed concern about avoiding competitivecurrency devaluation, whereby a country artificially weakens itscurrency to make its exports more competitive.
U.S. President Donald Trump is pushing to re-write traderelationships to lower the U.S. trade deficit and changeconditions he considers unfair to U.S. workers and companies.
His administration has engaged in a tit-for-tat tariff warwith China and wants to make currencies a part of any solutionto its trade dispute with China. The United States recently renegotiated the NAFTA trade pactwith Mexico and Canada. It has also agreed with Tokyo to enternegotiations for a trade deal that could potentially limitJapanese auto exports to the U.S. market Group of 20 countries, including China and Japan, have inprinciple agreed with IMF guidelines that competitive currencydevaluation should be avoided. But there has been disagreementover what constitutes a currency decline designed to boostexports and one designed to stabilise markets.
(Reporting by Stanley WhiteEditing by Sam Holmes & Simon Cameron-Moore)
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