Japan wants China to drop its currency peg to the dollar, Finance Minister Masajuro Shiokawa told the world's richest nations, a step that may strengthen the yuan and make goods from Japan more competitive.
"Countries which are pushing for trade liberalization should simultaneously push for the liberalization of finances and currency systems -- particularly member nations of the WTO," Shiokawa said yesterday at a press conference following a meeting of finance ministers and central bank governors of the G7 nations.
Japanese government officials have said the world's most populous nation should end pegging its currency to the dollar. The yuan would appreciate if the currency were allowed to trade freely because of China's rising foreign-exchange reserves and incoming foreign investment, economists said. China joined the WTO in 2001.
"Japan's argument is that China has become an exporting tidal wave," said Kenneth Courtis, Goldman Sachs Group Inc's vice chairman for Asia. As to whether China is likely to heed Japan's call, "the quick answer is one word: no."
Since China pegged the yuan at 8.3 to the dollar in 1994 cheap exports have fueled a US$199 billion trade surplus and low manufacturing costs have attracted US$308 billion in foreign investment. An 11 percent fall in the yuan against the yen last year made China's products more competitive against those from its second-biggest trading partner.
Haruhiko Kuroda, a former Japanese vice finance minister for international affairs, said in an essay published in the Financial Times in December that China ``is exporting deflation'' to the rest of the world and should allow its currency to reflect the economy's strength. Japan's consumer prices haven't risen since April 1998 partly because imports from China and other emerging economies forces Japanese manufacturers to cut prices.
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