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3 Apr 2013
Forex Flash: Chinese government neutral on Japanese yen depreciation - Nomura
FXstreet.com (Barcelona) - Nomura economist Zhiwei Zhang notes that the Chinese government published neutral comments on Japanese yen depreciation.
He begins by noting that The State Administration of Foreign Exchange (SAFE) issued the 2012 Balance of Payment report today which included a box on the depreciation of Japanese yen. He writes, “As far as we know this is the first time the Chinese government has given detailed comments on this issue in official documents. The comments are balanced and neutral, in our view.”
He continues to explain that the report starts by stating that “The Japanese yen depreciated against the US dollar and euro by 10.2% and 11.7% respectively from September to December 2012, but compared to the pre-crisis period in 2008, the yen still appreciated against the US dollar more than 30% and appreciated against the euro by more than 40%. Since the sharp appreciation after the “Plaza Accord” in 1985, the yen experienced four depreciation cycles, each time depreciating by more than 20%”.
Zhang feels that the report argues that yen depreciation helps the Japanese economy by boosting firms‟ competitiveness in the short term, but it cannot solve the structural problems such as demographics and decline of competitiveness in the manufacturing industry. Further, he notes that the report pointed out the spillover effect of yen depreciation on other major currencies (i.e. euro and US dollar appreciation), and the potential risks that, if other emerging market economies in Asia which directly compete with Japanese exporters follow Japan and let their currencies depreciate, trade frictions and policy competition may intensify.
Overall, he believes that these comments in the SAFE report show the Chinese authorities may not be very concerned about the impact of yen depreciation on China‟s economy. He feels that this is sensible as we think the overall impact is likely neutral or slightly positive. He writes, “Direct competition between manufacturing industries in China and Japan is limited. Some industrial sectors such as electronics are vertically integrated and Chinese exporters may benefit from cheaper parts imported from Japan. Moreover, cheaper Japanese machinery would help Chinese manufacturers to upgrade technology and save labor costs, which is important as the labor market in China has turned structurally tight as the working-age population declined in 2012.”
He begins by noting that The State Administration of Foreign Exchange (SAFE) issued the 2012 Balance of Payment report today which included a box on the depreciation of Japanese yen. He writes, “As far as we know this is the first time the Chinese government has given detailed comments on this issue in official documents. The comments are balanced and neutral, in our view.”
He continues to explain that the report starts by stating that “The Japanese yen depreciated against the US dollar and euro by 10.2% and 11.7% respectively from September to December 2012, but compared to the pre-crisis period in 2008, the yen still appreciated against the US dollar more than 30% and appreciated against the euro by more than 40%. Since the sharp appreciation after the “Plaza Accord” in 1985, the yen experienced four depreciation cycles, each time depreciating by more than 20%”.
Zhang feels that the report argues that yen depreciation helps the Japanese economy by boosting firms‟ competitiveness in the short term, but it cannot solve the structural problems such as demographics and decline of competitiveness in the manufacturing industry. Further, he notes that the report pointed out the spillover effect of yen depreciation on other major currencies (i.e. euro and US dollar appreciation), and the potential risks that, if other emerging market economies in Asia which directly compete with Japanese exporters follow Japan and let their currencies depreciate, trade frictions and policy competition may intensify.
Overall, he believes that these comments in the SAFE report show the Chinese authorities may not be very concerned about the impact of yen depreciation on China‟s economy. He feels that this is sensible as we think the overall impact is likely neutral or slightly positive. He writes, “Direct competition between manufacturing industries in China and Japan is limited. Some industrial sectors such as electronics are vertically integrated and Chinese exporters may benefit from cheaper parts imported from Japan. Moreover, cheaper Japanese machinery would help Chinese manufacturers to upgrade technology and save labor costs, which is important as the labor market in China has turned structurally tight as the working-age population declined in 2012.”