Currency manipulation by Japan—the second largest currency manipulator in the world—is a major driver of the U.S.-Japan trade deficit, which cost nearly 900,000 U.S. jobs in 2013. In Currency Manipulation and the 896,600 Jobs Lost Due to the U.S.-Japan Trade Deficit, EPI Director of Trade and Manufacturing Policy Research Robert Scott argues that the Trans-Pacific Partnership (TPP) should include strong measures to address currency manipulation by Japan and other nations.

In the past two years, Japan’s government has methodically driven down the value of the yen, primarily through large purchases of foreign assets by the Bank of Japan and of other foreign assets by Japan’s Government Pension Investment Fund. With the value of the yen declining the U.S.-Japan goods trade deficit reached $78.3 billion in 2013—reducing U.S. GDP by 0.75 percent, or $125.3 billion, and costing 896,000 jobs.

“Currency manipulation by Japan is the largest driver of the U.S.-Japan trade deficit, which is costing hundreds of thousands of jobs,” said Scott. “U.S. negotiators should insist that currency manipulation be addressed in the TPP, but by all accounts it has not been discussed at all.”

Several well-known currency manipulators, including Japan, Malaysia, and Singapore are included in TPP negotiations. Eliminating currency manipulation by these and other nations could reduce the U.S. global trade deficit by between $200 billion and $500 billion each year, which could increase overall U.S. GDP by between $288 billion and $720 billion and create between 2.3 million and 5.8 million U.S. jobs.

While all nations should be free to print money to purchase their own domestic assets, they should be strongly discouraged from purchasing and holding assets denominated in foreign currencies—the defining tool of currency manipulation. Before any trade and investment agreement takes effect, members of the TPP should agree to rebalance trade and currency markets, including through divestiture of excess foreign assets in government portfolios, forswear the use of currency manipulation in the future, and submit to strong, binding penalties in the event these commitments are violated.