NPR logo Japan's China-esque Currency Move


Japan's China-esque Currency Move

With everybody busy talking about China's currency, Japan just very publicly waded into public markets and started driving down the value of the Yen.

We tend to see China and Japan at opposite ends of the spectrum: the authoritarian, go-go Asian giant on the rise, versus the democratic, aging Asian giant on the wane.

But today's move by Japan is a reminder that their economies have a lot in common.

"Compared to the rest of the world, the two are more similar than different," Shang-Jin Wei of Columbia Business School told me this morning.

Both countries rely heavily on exports and run big trade surpluses year after year. (In other words, they export a lot more than they import.)

As a result, both have amassed huge reserves of foreign money. China has the world's largest stash of foreign-exchange reserves, and Japan is number two, Wei said.

In the long-term, this seems unsustainable. The global economy would be more balanced if China and Japan imported more and exported less (and if the U.S. exported more and imported less).

But neither Japan nor China seems eager to see the situation change.

Both countries appear to be intervening in currency markets in order to keep their currencies cheaper relative to other currencies. China has not publicly said it's doing this, but many economists think China's currency is far too cheap, relative to the dollar.

This intervention helps exporters, by making their products cheaper in other countries. It also makes imports more expensive.

In the short term, that tends to protect domestic jobs, by helping companies sell more stuff in other countries. It also tends to threaten jobs in other countries, by making it harder for foreign companies to sell stuff in China and Japan.

For more: Listen to our subtly titled podcast on China's currency, "Did China's Central Bank Take Your Job?"