China-Japan Show Sign of `War of Exchange Rate`

China and Japan are at `the silent war of exchange rate` with each other. Having been impacted by the weaker yen, currency values of Asian countries including Korea have turned to the downward spiral.

Predominant opinion of the Japan`s central bank and the political circle is that "China, which has brought in huge loss in trade amounting 2.7 trillion yen for the last 10 months this year, should revalue yuan about 30 percent more." Yuan was devalued once in January 1994. The value of yuan against dollar has been 8 yuan since 1997 foreign exchange crisis, and the Chinese government has been buying dollar in the foreign exchange market, which has repelled Japan.

In response to Japan`s request for the revaluation of yuan, the president of China`s People`s Bank Daishangrung rejected it flatly saying "the level of yuan is appropriate."

Some anticipate that China may devalue yuan since not only won but also currency of major Asian countries including Taiwan and Singapore has been weakened recently due to the weaker yen.

Manager of the Shanghai branch of the Korea Development Bank Min Kyung-Dong said, "China is making an effort to improve export competitiveness while making up for the lack of exports through the recovery of domestic demands. It will be difficult to avoid the conflict on exchange rate between Japan and China."

Meanwhile, the Japanese yen fell to 130 yen per dollar in three years and two month on 25th, and maintained 130.8 level on 26th. Yen fell to 130.9 in the New York foreign exchange market on the previous day.

An official of the Bank of Korea anticipated that it is possible that yen "may fall to 135 level considering the international circumstance." saying "the moderate recovery of yen on 26th is a temporary adjustment following the sharp fall."

Stimulated by the sharp drop of yen, the exchange rate of won against dollar rose to 1320, up 11.8 won, and soared to 1322 won once. As the news spread that the Ministry of Finance and Economy raised a concern regarding the weaker yen to the Japanese government, won closed at 1318 won, up 9.8 won. The exchange rate of won against yen marked 1008.4 won per 100 yen.

Rae-Jeong Park ecopark@donga.com