Powerful House Democrats are pressing the Bush administration to persuade Tokyo to strengthen the yen, claiming the currency's weakness is bolstering Japanese imports at the expense of US manufacturers.

In a letter to Hank Paulson, US Treasury secretary, the House members alleged that Tokyo was pursuing a cheap currency to subsidise exporters and urged Mr Paulson "to press the Japanese government to reverse their weak yen policy".

The pressure from Democrats sets up a confrontation with the US Treasury secretary, who argues the yen's weakness reflects Japan's economic fundamentals rather than a deliberate policy of manipulation.

The former head of Goldman Sachs has moved to stiffen the Treasury's resistance to Congress over currency policy and is set to replace the key official responsible for working with Congress on international imbalances.

The Democrats want Mr Paulson to distance himself from Tokyo at the Group of Seven finance ministers meeting starting in Germany today. But he is likely to resist pressure from Congress and European leaders to single out Japan.

The accusation of currency manipulation confirms the fears of executives of Toyota that the company is facing a political backlash on Capitol Hill as it overtakes General Motors as the world's biggest carmaker.

Michigan Representative Sander Levin, chairman of the House trade subcommittee, told the Financial Times: "Japan is clearly following policies to maintain a weak yen."

The yen's fall continued on Thursday, down 0.4 per cent to Y121.20 against the dollar and 0.6 per cent to Y157.90 against the euro.

Japanese exports as a percentage of gross domestic product have ? at 16 per cent ? surpassed the levels of 1985 when Japan was forced to revalue under pressure from the US.

Takatoshi Ito, a member of the Japanese cabinet's council on fiscal and economic policy, said: "Japan has not intervened since March 2004 - not even oral intervention - so the ministry of finance is clean as market fundamentals push the yen weaker."

Tensions over the yen are set to be reflected in legislation drafted in the Senate on currency manipulation, analysts said.

Representative Barney Frank, chairman of the House Financial Services Committee, said: "This is directly tied to the administration's efforts to get trade promotion authority renewed. It cannot be the case that we will let the status quo go on."

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