Effect of Revaluation of the Yuan on Japan's Economy
Limited impact on Japan’s economy as long as the yen does not appreciate sharply reflecting yuan revaluation
June 22, 2010
Summary
◆People’s Bank of China announces enhancement of forex rate flexibility: On 19 June, the People’s Bank of China (PBC) announced that it had decided to enhance yuan exchange rate flexibility. Following an end to the yuan’s peg to the dollar that virtually started in July 2008, expectations that the yuan will gradually appreciate are growing in global financial markets.
◆Effect of revaluation of the yuan on Japan’s economy: For this report, we examined the impact of yuan revaluation on Japan’s economy based on quantitative analysis and reviewed the possibility that inflationary concerns in China might lead to a contraction of Japan’s economy. According to our quantitative analysis, should the Chinese yuan rise 5% against the US dollar, Japan’s real GDP growth would contract about 0.1 point. This result should be interpreted with a certain amount of latitude. As long as the yen does not appreciate sharply, there is no need to be overly concerned about the effect of yuan revaluation on Japan’s economy.
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