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Japan urged to mediate U.S.-China yuan row

by Ko Hirano

Kyodo News

BEIJING — With China facing pressure from the United States to appreciate the yuan to balance the trade imbalance, analysts are urging Japan to play the role of mediator.

Japan, which has advised China to make a “sensible judgment” in reforming its dollar-pegged currency policy, can help the two countries narrow the gap in the next three months, which U.S. Treasury Secretary Timothy Geithner calls a “crucial” period in “advancing U.S. interests,” the analysts say.

Geithner said Saturday the U.S. will conduct currency diplomacy with China at venues such as the meeting of finance ministers and central bank governors of the Group of 20 major economies later this month in Washington, a U.S.-China strategic and economic dialogue in China in May, and another meeting of G20 finance ministers and central bank chiefs in June in South Korea.

U.S. manufacturers say the yuan is undervalued by as much as 40 percent to give Chinese products an unfair trade advantage, and Congress is threatening to slap duties on Chinese imports unless Beijing raises the currency’s value.

“A move by China to a more market-oriented exchange rate will make an essential contribution to global rebalancing,” Geithner said in a statement. “China’s inflexible exchange rate has made it difficult for other emerging market economies to let their currencies appreciate.”

But Premier Wen Jiabao has dismissed claims that the yuan is undervalued and Commerce Minister Chen Deming said the yuan’s exchange rate alone will not address the U.S.-China trade imbalance.

“Japan should stand between the United States and China, and tell Washington not to employ protectionist measures and China to revalue the yuan for its own interest,” especially when the Chinese economy shows signs of overheating, said Masahiro Kawai, dean of the Asian Development Bank Institute in Tokyo.

“China should tighten credits further because signs of a bubble have emerged in the economy,” said Kawai, a former vice vice finance minister for international affairs. “Currency revaluation should be carried out as part of monetary-tightening steps.”

Inflation is likely to increase in China this year, a recent World Bank report shows, forecasting that the consumer price index will rise 3.7 percent, higher than the government’s target of capping it at 3 percent.

When Finance Minister Naoto Kan met Wen in Beijing on Saturday, he did not join the U.S. call to revalue the yuan but expressed hope that China reforms its currency system.

Japan does not want to see the yuan appreciate sharply, because this could slow growth in China or widen the bilateral trade deficit.

“Unlike the United States and Europe, Japan sees no urgency in demanding a revaluation of the yuan because Japan’s trade with China is almost balanced,” a Foreign Ministry official said.

The official also quoted concerns by industry and market players that a stronger yuan could lead to a firmer yen, which could affect Japan’s exports and economic recovery.