by Caitlin Kenney

Treasury Secretary Timothy Geithner has the dollar on his mind during his first visit to Japan. In meetings with Japan's prime minister and finance minister, Geithner said he was encouraged by their promises to make sure that Tokyo's "future growth will come more from domestic demand." He also acknowledged signs of growth in China and said reforms there will take time. The Wall Street Journal (subs. req'd) reports:

As Mr. Geithner touted Beijing's efforts to build what he calls a "less export-intensive" economy, he indicated his patience with China's policy of keeping the yuan undervalued against other currencies to boost its exports. That's despite stepped-up calls from Europe and the International Monetary Fund on the Chinese to accept rises in the yuan to cut the nation's trade surplus, which is a major part of global economic imbalances.

"I don't want to say more than what I've said in the past, which is that China has laid out this very broad direction of reforms' to invigorate domestic demand, Mr. Geithner said. "It's a very complicated mix of policy changes. As part of that, they've recognized that it's in their interest over time to move to a move flexible .. exchange rate."

Economic data released today shows that China's economy has recovered more quickly than many other parts of the world. In October, industrial output jumped 16.1 percent and retail sales increased 16.2 percent compared to last year. Exports also declined at their lowest rate this year.

 

Responding to the indicators, the People's Bank of China hinted they may be willing to let the currency strengthen. Bloomberg reports:

Policy makers will improve the setting of the yuan's rate in a "proactive, controlled and gradual manner and based on international capital flows and movements in major currencies," the People's Bank of China's said today in a quarterly report. Officials have previously aimed to keep the yuan "stable."

President Obama is expected to bring up currency issues when he meets with President Hu Jintao and Premier Wen Jiabao in Beijing next week.