Democrats: Yen not set in free market

Senior U.S. Democrats have challenged U.S. Treasury Secretary Henry Paulson's assertion that the value of Japan's yen currency is fairly set and are urging him to press Tokyo on the issue.

"We believe that a weak yen is a reflection of Japanese government policy," the four Democrats -- Reps. Charles Rangel of New York, Barney Frank of Massachusetts, John Dingell of Michigan and Sander Levin of Michigan -- said in a letter to Paulson that was released today.

"We urge you to press the Japanese government to reverse their weak yen policy through concrete action. The Japanese government should be selling the massive reserves it has accumulated thereby changing the imbalances with the dollar and the Euro," the lawmakers said.

The letter follows Paulson's testimony before several congressional panels this week where he repeatedly said he did not believe the current weak value of the yen was due to Japanese government action.

Paulson is meeting with finance ministers from the Group of Seven industrialized countries -- the United States, Britain, Canada, France, Germany, Italy and Japan -- in Essen, Germany, on Friday and Saturday.

His stance on the yen has put him at odds with some European ministers, including German Finance Minister Peer Steinbrueck, who have said Japan's yen is undervalued and wanted it discussed at the G7 meeting.

Two of the four Democrats -- Levin and Dingell -- who wrote Paulson are the from the Detroit area, which has long been the center of the automobile industry in the United States.

Michigan remains the largest automaking state, accounting for 27.5 percent of U.S. production in 2005.

Steve Collins, president of the Automotive Trade Policy Council, called Paulson's comments this week on yen "extremely disappointing" given what the U.S. industry sees as long-term Japanese government manipulation of the yen.

"The reason that the auto companies speak up so much about this is that two-thirds of the trade deficit with Japan is automotives and it's been that way for 20 years," Collins said.

Although Japanese automakers have increase production in the United States, "the fact of the matter is almost half of what Toyota sold last year was exported from Japan and all of those in our view are subsidized by the weak yen," Collins said. "Nobody in Treasury seems to get it or care."

Paulson said this week there was no evidence that Japanese authorities had intervened in the yen market since March 2004.

In their letter, the Democrats argued the weak yen "reflects the Japanese government's massive intervention earlier in this decade, an intervention which still reverberates in the value of their currency."

"The weak yen also reflects monetary and fiscal policies, including setting low interest rates and failing to stimulate consumer demand," the lawmakers said.