Japan's finance minister Saturday asked China to let its tightly controlled currency rise at "the fastest possible speed," aligning himself with other Group of Seven leaders pushing for quicker appreciation of the yuan.
"As for the Chinese yuan, I asked [Chinese ministers] if they could take steps to let it rise at the fastest possible pace," Finance Minister Fukushiro Nukaga told reporters, after top-level economic talks between the two nations Saturday. Mr. Nukaga's comments underscore how China now faces similar pressure from all the G7 leading industrialized nations on its currency policy.
While Mr. Nukaga's commentary was soft in its tone, it was the most straightforward call for a stronger yuan ever made by Japanese officials. It also marked a sudden break with his previous approach. Until Saturday, Mr. Nukaga had kept mostly mum on the matter, even after the G7 as a group demanded faster yuan appreciation at its October gathering. A week ago, Europe also adopted a tougher, U.S.-style position on the yuan...
Chinese ministers said during the Sino-Japanese economic talks that they will work to increase their currency's "flexibility," according to Mr. Nukaga. Still, it remains to be seen whether China will carry that out in a way that would satisfy the G7. The yuan has risen around 12% since July 2005, when China revalued the currency by 2% and ended a decade in which Beijing kept the exchange rate pegged at around 8.3 yuan to the dollar. This year the yuan has gained more than 5%. But some analysts say the pace is slow, and the U.S. and Europe are urging Beijing to speed things along.
Japan's request for yuan gains, however, may have more to do with China's seemingly unhealthy economic boom that analysts say is partly traceable to Beijing's currency control. While Japan runs a deficit with the mainland China, the island nation's trade balance is in the black when its surplus with Hong Kong is taken into account. "China's stable, sustainable growth is extremely important for the Japanese economy," State Minister for Economic and Fiscal Policy Hiroko Ota said at a news conference with other Japanese ministers. China is Japan's largest trade partner.
"I've told them I hope they will stamp out the bubble by wiping out the excess liquidity (in Chinese markets) and have a stable, domestic demand-driven expansion continue," Ms. Ota said.
Economists say China's currency-market intervention is partly to blame for accelerating inflation, overheating growth and asset-price bubbles there. Some of the yuan sold by Beijing to mop up incoming foreign money to keep its currency weak has found its way into stocks, land and other investments, they say. Chinese ministers said they are aware of the heightening risks of domestic bubbles, according to Ota. They said they will "make efforts" to eliminate excess money in the markets by raising interest rates and reducing government spending, she said.
all the G-7 countries are now on board the "China must revalue more quickly" train. At a just-concluded Sino-Japanese economic meeting, Japanese Finance Minister Fukushiro Nukaga prodded his Chinese interlocutors to make the Chinese renminbi revalue faster. This is kind of rich in that the Japanese yen has been languishing in value as of late--especially against the euro. Instead of intervention in the case of the yuan, though, the weak yen has largely been the byproduct of the dastardly carry trade. Still, presenting a united G-7 front may still count for something. Did Japan jump into the currency fray or was it pushed by the US and other G-7 members? I suspect the latter figures more heavily into the equation. From the Wall Street Journal: