U.S. Treasury Secretary Scott Bessant [Photo=Reuters Yonhap News]

"Shaking the East Asian Exchange Rate Order Ahead of Trump's Visit to China"

U.S. Treasury Secretary Scott Bessant's tour of East Asia is, on the surface, a schedule for economic consultations with Japan and preliminary coordination for the U.S.-China presidential summit.

However, if you follow the flow, the key issue is exchange rates. In Tokyo, it's the yen; in Seoul, it's the won and the yuan; and in Beijing, it's the currency and trade balance between the U.S. and China, addressed sequentially.

Secretary Bessant will visit Japan and South Korea in succession starting on the 11th, then join the summit between U.S. President Donald Trump and Chinese President Xi Jinping in Beijing.

He stated that he would head to China after meeting with Chinese Vice Premier He Lifeng in Seoul on the 13th. Yonhap News also reported that Secretary Bessant was expected to visit Seoul around the 13th to discuss foreign exchange markets and economic and financial issues with high-ranking South Korean officials.

Viewing this tour as merely a transit stop would mean missing its significance.

Tokyo is a venue for coordinating U.S.-Japan trade and exchange rate issues, and Seoul is a preliminary negotiation ground for economic officials just before the U.S.-China summit. Beijing, based on this preliminary coordination, is the final stage where discussions will take place between the leaders.

In essence, the itinerary involves visits to Japan, South Korea, and China, but the underlying structure is closer to an exchange rate itinerary, sequentially resolving issues related to the yen, the won, and the yuan.

The nature of the Tokyo leg is relatively clear.

Reuters reported that Secretary Bessant is scheduled to meet with the Japanese Prime Minister, Finance Minister, and Governor of the Bank of Japan, and that discussions could include curbing speculative yen selling, economic security issues such as rare earth and energy procurement, and the Iran war.

Japan is facing increased import prices and household burdens due to the weak yen, and the U.S. and Japan agreed last month to strengthen communication on exchange rate policy.

What is important here is the yen, more so than rare earths or energy. Rare earths are a supply chain issue, and energy is a cost of import issue. However, both issues ultimately connect back to exchange rates.

A weaker yen increases energy import costs, and the burden on prices, in turn, translates into political pressure. For Japan to secure justification for intervention in the currency market, it needs implicit understanding from the U.S. Treasury.

Secretary Bessant's visit to Tokyo can be seen as an opportunity to confirm the extent to which the U.S. will draw a line for Japan's strategy to defend against a weak yen.

The Seoul leg is more delicate.

Although Secretary Bessant is visiting South Korea, the crucial meeting is with Chinese Vice Premier He Lifeng, rather than bilateral talks with the South Korean government.

This does not mean South Korea is merely a backdrop. The South Korean won has recently come under depreciation pressure along with the yen.

In March, the finance ministers of South Korea and Japan expressed concern over the sharp depreciation of the won and the yen, stating they were prepared to respond to excessive foreign exchange market volatility.

At the time, Reuters analyzed that demand for the U.S. dollar as a safe haven due to the Iran war and the burden of energy imports were exacerbating the weakness of the won and the yen.

The won issue is already on the table between South Korea and the U.S.

Last month, Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol and Secretary Bessant met in Washington and agreed that excessive won volatility is undesirable, and decided to continue foreign exchange market consultations.

Therefore, Secretary Bessant's stop in Seoul is not just a geographical transit but holds significance in connecting won stabilization with U.S.-China currency negotiations.

Given this, it is difficult to explain the agenda for the meeting with Vice Premier He Lifeng without mentioning exchange rates.

The publicly announced agenda is preliminary coordination for President Trump's visit to China and the U.S.-China presidential summit.

In fact, Secretary Bessant and Vice Premier He discussed President Trump's visit to China and bilateral economic and trade issues in a video call late last month.

Secretary Bessant pointed out at the time that China's offshore regulations were having a cooling effect on global supply chains, and China expressed concern over U.S. trade restrictions against it.

However, beneath the trade conflict lies the issue of the yuan.

What the U.S. is demanding of China is not merely a reduction in tariffs or increased purchases of American agricultural products.

It involves whether China is propping up its export competitiveness through exchange rates, subsidies, and industrial policies, whether the yuan's value adequately reflects market trends, and the transparency of capital movements and foreign exchange market operations.

In its January exchange rate report this year, the U.S. Treasury stated that it had not designated any major trading partners as currency manipulators.

However, it emphasized that it would closely monitor any manipulation of currency values through foreign exchange intervention and non-market policies, and explained that it had confirmed transparent exchange rate policies and close consultations through joint statements on exchange rates with countries including Japan, South Korea, and Taiwan.

This indicates that Secretary Bessant's tour is not an impromptu event but is situated within the framework of the U.S.'s ongoing currency monitoring and consultation system.

The opening of the capital markets should also be viewed within this framework.

While China's capital market opening may appear to be a separate financial agenda, it is actually intertwined with the internationalization of the yuan, foreign capital inflows, capital controls, and the ability to defend the exchange rate.

If China further opens its markets, demand for the yuan may increase, but simultaneously, the risk of capital outflow also grows. The U.S. can demand access to and transparency in China's financial markets, while China can demand a relaxation of U.S. investment restrictions on China.

However, fundamentally, this too is a question of exchange rates and capital flows, concerning "who controls the gates for money in and out, and under what conditions."

The Iran issue is also not unrelated to exchange rates.

Secretary Bessant recently pressed China to take a more active role in resolving the Strait of Hormuz issue, pointing out that China is purchasing a significant portion of Iran's energy. The U.S. stated that this issue would be on the agenda for the summit between President Trump and President Xi.

The risk associated with Hormuz disrupts oil prices, and rising oil prices lead to depreciation pressure on the currencies of energy-importing countries like Japan and South Korea. Therefore, the Iran and energy issues are not separate diplomatic matters but background variables for the stability of East Asian exchange rates.

Ultimately, the structure of this tour is clear.

In Tokyo, issues of yen depreciation and U.S.-Japan economic matters are addressed. In Seoul, after passing through South Korea with its won issues, China's economic officials and the yuan, trade, and capital flows are aligned.

In Beijing, President Trump and President Xi will address all these contentious issues at the leader level.

Tariffs are the visible tools of trade war. However, exchange rates are the invisible negotiations that reorder the price structure underneath.

What the U.S. desires is not a simple reduction in tariffs but to keep the exchange rate movements of Japan, South Korea, and China within a manageable range, within the currency order centered on the dollar.

To interpret Secretary Bessant's East Asian tour solely as "U.S.-Japan trade consultations and preparation for the U.S.-China summit" is to see only half the picture.

The true price tag of this schedule is exchange rates. The yen in Tokyo, the won and yuan in Seoul, and the U.S.-China currency balance in Beijing are all connected in a single line.

To summarize in one sentence: If trade is the overt agenda, then exchange rates are the essence of this Bessant tour.