I 
110TH CONGRESS 
1ST SESSION H. R. 2886 
To address the exchange-rate misalignment of the Japanese yen with respect 
to the United States dollar, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 27, 2007 
Mr. KNOLLENBERG introduced the following bill; which was referred to the 
Committee on Ways and Means, and in addition to the Committee on Fi-
nancial Services, for a period to be subsequently determined by the 
Speaker, in each case for consideration of such provisions as fall within 
the jurisdiction of the committee concerned 
A BILL 
To address the exchange-rate misalignment of the Japanese 
yen with respect to the United States dollar, and for 
other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Japan Currency Ma-
nipulation Act’’. 
SEC. 2. FINDINGS. 
Congress finds the following: 
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(1) The Japanese yen is, by any measure, in 
fundamental misalignment with every major cur-
rency and, according to the Bank of Japan, is now 
trading at the lowest trade-weighted average in the 
last 20 years. 
(2) The Board of Governors of the Federal Re-
serve System reported, in a January 2004 working 
paper, ‘‘Since the early 1990s, the monetary au-
thorities of the major industrialized countries, with 
one notable exception, have greatly curtailed their 
foreign exchange interventions. That exception has 
been Japan, where the Ministry of Finance has con-
tinued to intervene frequently—and at times mas-
sively—in foreign exchange markets.’’. 
(3) The fundamental cause of Japan’s ex-
change-rate misalignment is a set of deliberate pol-
icy decisions by the Government of Japan designed 
to artificially suppress the world market value of the 
yen in order to increase Japanese exports substan-
tially. 
(4) Japan’s $875,000,000,000 in foreign cur-
rency reserve holdings are the second largest in the 
world, far exceeding any reasonable economic jus-
tification and extremely disproportionate to the for-
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eign currency reserves held by other industrialized 
nations. 
(5) The United States trade deficit with Japan 
is the second highest—$88,000,000,000 in 2006— 
and trade in automobiles and automobile parts 
makes up two-thirds of the trade deficit. 
(6) Japan has maintained a massive and con-
sistently large current account trade deficit with the 
United States for more than 25 years, with the ma-
jority of that deficit attributable to automobiles and 
automobile parts. 
(7) At the current average rate of exchange of 
117 Japanese yen to the United States dollar, Japan 
is providing a $3,600 subsidy for a typical family 4- 
door sedan made in Japan, a $9,700 subsidy for 
upper-end and luxury vehicles made in Japan, and 
thousands of dollars in cost advantages for Japanese 
automobiles made in the United States with im-
ported Japanese automobile parts. 
(8) The exchange-rate misalignment of the Jap-
anese yen with respect to the United States dollar 
effectively provides a subsidy to Japanese exporters 
and an unfair competitive advantage for Japanese 
automobile manufacturers over United States auto-
mobile manufacturers. 
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SEC. 3. DEFINITIONS. 
In this Act: 
(1) 
CURRENCY
INTERVENTION.—The 
term 
‘‘currency intervention’’ means— 
(A) direct currency intervention, such as 
purchases of United States dollars and sales of 
Japanese yen that are greater than such pur-
chases and sales for the preceding 3-year period 
with a correlating effect of countering the ap-
preciation of the Japanese yen; and 
(B) indirect currency intervention, such as 
comments by officials of the Government of 
Japan on the value of the Japanese yen that 
are accompanied by a correlated change in the 
rate of exchange of the Japanese yen with re-
spect to the United States dollar and other cur-
rencies. 
(2) EXCHANGE-RATE MISALIGNMENT.— 
(A) IN GENERAL.—The term ‘‘exchange- 
rate misalignment’’ means an undervaluation of 
the Japanese yen as a result of protracted 
large-scale currency intervention by or at the 
direction of the Government of Japan in the ex-
change market. An undervaluation exists if the 
observed exchange rate for the Japanese yen is 
below the rate of exchange that could reason-
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ably be expected for the Japanese yen absent 
the intervention. 
(B) FACTORS.—In determining whether 
exchange-rate misalignment is occurring and a 
benefit thereby is conferred, the Secretary in 
each case— 
(i) shall consider Japan’s— 
(I) bilateral balance-of-trade sur-
plus or deficit with the United States; 
(II) balance-of-trade surplus or 
deficit with its other trading partners 
individually and in the aggregate; 
(III) foreign direct investment in 
its territory; 
(IV) currency-specific and aggre-
gate amounts of foreign currency re-
serve holdings; and 
(V) mechanisms employed to 
maintain the Japanese yen at an un-
dervalued rate of exchange with re-
spect to the United States dollar and 
other currencies and, particularly, the 
nature, duration, and monetary ex-
penditures of those mechanisms; 
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(ii) may consider such other economic 
factors as are relevant; and 
(iii) shall measure the trade surpluses 
or deficits described in subclauses (I) and 
(II) of clause (i) with reference to the 
trade data reported by the United States 
and the other trading partners of Japan, 
unless such trade data are not available or 
are demonstrably inaccurate, in which case 
Japan’s trade data may be relied upon if 
shown to be sufficiently accurate and 
trustworthy. 
(C) COMPUTATION.—In quantifying ex-
change-rate misalignment, the Secretary shall 
develop and apply an objective methodology 
that is consistent with widely recognized macro-
economic theory and shall rely upon govern-
mentally published and other publicly available 
and reliable data. 
(3) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of the Treasury. 
SEC. 4. REPORT ON CURRENCY INTERVENTION AND EX-
CHANGE-RATE MISALIGNMENT. 
(a) IN GENERAL.—Not later than 180 days after the 
date of the enactment of this Act, and every 180 days 
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thereafter, the Secretary shall submit to Congress a report 
on— 
(1) currency intervention by the Government of 
Japan with respect to the rate of exchange of the 
Japanese yen and the United States dollar and other 
currencies since 2000; and 
(2) any effort by the Government of Japan to 
create an exchange-rate misalignment of the Japa-
nese yen with respect to the United States dollar 
and other currencies since March 2004. 
(b) CONTENTS OF REPORT.— 
(1) CURRENCY
INTERVENTION
BY
THE
GOV-
ERNMENT OF JAPAN SINCE 2000.—The report re-
quired by subsection (a) shall include— 
(A) a description of all known and re-
ported incidents of direct or indirect currency 
intervention by the Government of Japan un-
dertaken to adjust the rate of exchange between 
the Japanese yen and the United States dollar 
and other currencies since 2000; 
(B) a description of all other incidents of 
currency intervention by the Government of 
Japan that have not been reported but in which 
the Secretary knew or suspected the Govern-
ment of Japan had participated; and 
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(C) for each incident of currency interven-
tion described in subparagraphs (A) and (B), a 
justification for the reasons the United States 
did not consider the incident of currency inter-
vention, or report or act upon the incident of 
currency intervention, under— 
(i) the Exchange Rates and Inter-
national Economic Policy Coordination Act 
of 1988 (22 U.S.C. 5301 et seq.); 
(ii) title III of the Trade Act of 1974 
(19 U.S.C. 2411 et seq.); or 
(iii) section 2102(c)(12) of the Bipar-
tisan Trade Promotion Authority Act of 
2002 (19 U.S.C. 3802(c)(12)). 
(2) EXCHANGE-RATE
MISALIGNMENT
SINCE 
MARCH 2004.—The report required by subsection (a) 
shall also include a description of any efforts by the 
Government of Japan since March 2004 to create or 
maintain the exchange-rate misalignment of the Jap-
anese yen with respect to the United States dollar 
and other currencies, including through— 
(A) statements made by officials of the 
Government of Japan regarding the value or 
movement of the Japanese yen that affect the 
rate of exchange of the Japanese yen with re-
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spect to the United States dollar and other cur-
rencies; 
(B) covert exchange rate policies or at-
tempts to increase foreign currency reserve 
holdings or attain material global current ac-
count surpluses; 
(C) directives that alter investments of 
pensions plans and insurance companies in 
order to gain an unfair competitive advantage 
in international trade; and 
(D) any other effort to prevent effective 
balance of payments adjustments or to gain an 
unfair competitive advantage in international 
trade. 
SEC. 5. PROPOSAL FOR JOINT UNITED STATES-EUROPEAN 
UNION PLAN TO ADDRESS THE EXCHANGE- 
RATE MISALIGNMENT OF THE JAPANESE 
YEN. 
(a) IN GENERAL.—Not later than 60 days after the 
date of the enactment of this Act, the Secretary shall sub-
mit to the Committee on Finance of the Senate and the 
Committee on Ways and Means of the House of Rep-
resentatives a proposal for a comprehensive joint United 
States-European Union plan to address the exchange-rate 
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misalignment of the Japanese yen with respect to the 
United States dollar and other currencies. 
(b) CONSULTATIONS.—The Secretary shall develop 
the proposal described in subsection (a) in consultation 
with— 
(1) the Board of Governors of the Federal Re-
serve System; 
(2) the Council of Economic Advisors; 
(3) the Secretary of Commerce; and 
(4) the Secretary of State. 
(c) CONTENTS.—The proposal described in sub-
section (a) shall include a commitment to raise the issue 
of the exchange-rate misalignment of the Japanese yen 
with respect to the United States dollar and other cur-
rencies at each meeting of the G–7 Finance Ministers and 
each meeting of the G–7 Leaders until the Japanese yen 
is no longer in exchange-rate misalignment with respect 
to the United States dollar and other currencies. 
SEC. 6. CONSULTATIONS WITH JAPAN. 
Not later than 30 days after the date of the enact-
ment of this Act, the Secretary, in consultation with the 
Council of Economic Advisors, shall initiate consultations 
with the Government of Japan for the purpose of decreas-
ing the foreign currency reserve holdings of the Govern-
ment of Japan to permit effective balance of payments ad-
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justments and to eliminate the unfair competitive advan-
tage in international trade. 
SEC. 7. RESPONSE TO FUTURE CURRENCY INTERVENTION. 
In the case of a direct or indirect act of currency 
intervention by the Government of Japan that has the ef-
fect of decreasing the rate of exchange of the Japanese 
yen with respect to the United States dollar to prevent 
effective balance of payments adjustments or to gain an 
unfair competitive advantage in international trade, the 
Secretary shall immediately take action unilaterally, bilat-
erally, or multilaterally, to dissuade, prevent, or object to 
such action. 
SEC. 8. MEETING OF THE INTERNATIONAL MONETARY 
FUND. 
The United States shall call for the convening of a 
special meeting of the International Monetary Fund to 
reach a multilateral agreement addressing— 
(1) the exchange-rate misalignment of the Jap-
anese yen with respect to the United States dollar 
and other currencies; 
(2) the destabilizing effects of the exchange-rate 
misalignment of the Japanese yen; and 
(3) the excessive foreign currency reserve hold-
ings of the Government of Japan. 
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SEC. 9. REPORT ON PROGRESS. 
Not later than 180 days after the date of the enact-
ment of this Act, and every 180 days thereafter, the Sec-
retary shall report to the Committee on Finance of the 
Senate and the Committee on Ways and Means of the 
House of Representatives on— 
(1) the progress made toward decreasing the 
foreign currency reserve holdings of the Government 
of Japan; 
(2) actions taken at meetings of the G–7 Lead-
ers, the G–7 Finance Ministers, and the Inter-
national Monetary Fund regarding the exchange- 
rate misalignment of the Japanese yen with respect 
to the United States dollar and other currencies; and 
(3) the progress toward eliminating the ex-
change-rate misalignment of the Japanese yen with 
respect to the United States dollar and other cur-
rencies. 
Æ 
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