A stronger Chinese currency is in the world’s interest, according to Robert Feldman, head of economic research at Morgan Stanley in Tokyo.
China’s yuan surged to the strongest level against the U.S. dollar since 1993 today on speculation the government will allow faster appreciation to head off U.S. trade sanctions as its economy improves.
Strengthening the currency would produce “a stable or fair and economically correct spectrum, or vector of exchange rates” for the Asian region, Feldman said in a “Bloomberg Surveillance” radio interview today with Tom Keene. “They have an obligation, even to their own people, to keep growth going, to raise living standards.”
A stronger yuan, or renminbi, as the currency is also known, would benefit Chinese consumers and Japanese consumer goods makers by allowing them to “penetrate further into the Chinese market, which is a natural development given the high Chinese growth,” Feldman said.
The central bank fixed the reference rate at 6.7378 per dollar, the highest level since a peg against the dollar was scrapped in July 2005, before the U.S. House Ways and Means Committee discusses China’s currency policy tomorrow and Sept. 16. China, which had a $227 billion trade surplus with the U.S. in 2009, has been the subject of more complaints filed over unfair trade than any other nation, according to data compiled by the World Bank.
“Japan and the United States need to work together to bring China around to see that it’s in their own best interests as well to let that happen,” Feldman said.
Japan’s yen traded stronger than 83 per U.S. dollar, reaching a 15-year high against the greenback today after Japanese Prime Minister Naoto Kan beat his rival Ichiro Ozawa in a party vote, reducing the likelihood the government will take steps to weaken the currency.
The yen is near the peak of its appreciation, Feldman said. “We’re looking toward year-end for a weakening yen,” he said. He cited accelerating outflows from Japanese retail investors “plus some intervention, plus BOJ easing as the indicators worsen. “I see the yen going toward the 90s by the end of the year.”
The U.S. is unlikely to face the kind of “lost decade” of economic stagnation that has vexed Japanese policy makers, Feldman said. The U.S. has a younger population, a central bank that is more responsive to the political need to boost growth and is not protected from the ravages of falling prices by a current account surplus, all of which make officials see that the U.S. “will have to get its act together,” he said.