Free trade talks, freer ride for weak yen?

LONDON: International toleration of a weak yen may rise, opening the way for it to fall toward 100 to the dollar, after Japan decided yesterday to seek to join talks on a US-led Pacific free trade pact.
US President Barack Obama would hope to include Japan, the world's third largest economy, in the Trans-Pacific Partnership (TPP), a projected free trade bloc that currently would not include China.
That would have geopolitical as well as economic advantages for Washington, binding Japan into a broader US-led Pacific rim bloc.
An implicit quid pro quo might be that yen weakness — the dollar is up 15.7 percent against the Japanese currency since October on expectations of looser Bank of Japan monetary policy.
It might also make a weakening of the yen to 100 against the dollar more palatable to Washington, if successful negotiations lastingly opened up Japanese markets to more US products.
But Japanese Prime Minister Shinzo Abe's decision, even with his current 70 percent approval rating, is not without risks. While TPP membership would arguably increase Japan's ability to tap into the wider economic growth around the Pacific basin, it would also open Japan up to tough competition.
TPP talks envisage phasing out tariffs for agricultural products, a move that will not play well with Japanese farmers, a bulwark of support for Abe's Liberal Democratic Party. Japan will also have noted that while "all goods are on the table", according to TPP US negotiator Barbara Weisel, some US lawmakers are already exhibiting qualms.
Four dozen Democratic lawmakers wrote to Obama this week to express concern about Japan joining the free trade talks.
They urged Obama to maintain US tariffs on Japanese autos and trucks if Tokyo does enter the negotiations.
That does not sound like unfettered free trade, although the trade off might yet be that Japan retains its protection of its farmers in exchange for the United States keeping auto and truck tariffs in place.
Nevertheless, with Abe having decided to engage in the talks against this backdrop, perhaps the least he might expect is Washington's forbearance about the slide in the yen.

— Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own.