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Tuesday, 15 January, 2002, 10:37 GMT
China voices weak yen worries
Central bank governor Dai Xianglong
For Mr Dai, the falling yen could prove a headache
China has become the latest Asian country to voice its concern about the effects of a weakening Japanese yen.

"We hope the Japanese government will heed the concerns of Asian economies and will maintain the stability of the yen and avoid a domino effect of the depreciation of the yen in Asia," said Dai Xianglong, governor of the People's Bank of China, the country's central bank.


The [Chinese] economy is in good shape... the exchange rate will be stable

Dai Xianglong, People's Bank of China
"We do not want to see such a scenario."

Japan has tacitly opted for weak-yen policy this year, in the hope of stimulating exports, and its currency has fallen to three-year lows.

But neighbouring states have voiced concerns that the move could undermine currency stability around the region, sparking a series of competitive currency devaluations.

Nervous neighbours

In the past few days, a number of Asia countries, most forcibly Malaysia, have expressed concern.

But it is the attitude of China - Asia's second-biggest economy - that will prove most decisive, observers have said.

The People's Bank was in contact with its counterpart in Tokyo and had expressed concerns over the depreciation of the yen, Mr Dai said.

He insisted that it would herald no immediate change in Chinese currency policy.

The People's Bank would continue to allow the controlled fluctuation of the Chinese yuan in the long term, Mr Dai said.

The yuan is at present only partially convertible, and therefore does not float freely.

Steady as she goes

Strong economic fundamentals mean that the yuan should avoid devaluation, Mr Dai said.

"The economy is in good shape in terms of the balance of payments," he said.

"China's foreign direct investment rose 15% last year. China still enjoys a trade surplus and [foreign currency] reserves are growing.

"Based on these factors, the exchange rate will be stable."

China plans gradually to make the yuan more freely convertible as membership of the World Trade Organisation gathers pace, but the pace and extent of liberalisation has long been a matter for debate among Asian investors.

See also:

09 Jan 02 | Business
Japan pins hopes on weak yen
14 Dec 01 | Business
Yen hits three-year low
12 Dec 01 | Business
Gloom increases at Japanese firms
11 Dec 01 | Business
Yen weakens as spotlight hits Japan
07 Dec 01 | Business
Japan falls into recession
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