China’s Chen Warns on Currency Risk as Yen Slumps to ’09 Low

China’s Commerce Minister Chen Deming said he’s concerned at the risk of competitive devaluations as the yen slumped to the lowest level against the dollar in more than three years.

Large depreciations of major currencies “will have a big impact on China and other emerging nations,” Chen said today at a briefing in Beijing. He urged sticking to a Group of 20 pledge to avoid competitive devaluations and expressed concern at spillovers of money into emerging economies.

In Tokyo, Japan’s top currency official, Takehiko Nakao, said in an interview today that inflows of capital from advanced-nation easing can aid developing economies.

The yen has weakened about 14 percent against the dollar in the past three months in anticipation of greater stimulus under Prime Minister Shinzo Abe’s campaign to revive Japanese growth. In Moscow last month, Japanese officials told finance chiefs from G-20 nations that weakness in the currency was a byproduct of efforts to counter deflation and spur growth.

Koichi Hamada, an economic adviser to Abe, echoed that stance today in a speech in Tokyo, saying that a currency war will be avoided so long as Japan refrains from targeting a specific level for the yen.

The yen slid 0.6 percent to 95.36 per dollar as of 4:39 p.m. in Tokyo, the weakest since August 2009.

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Chen, who spoke during the annual meeting of the National People’s Congress, was responding to a question about the impact a weakening yen would have on China’s foreign trade.

“I’m worried about inflation for the year and I worry that competitive devaluations will lead to an oversupply of money and it will have a negative spillover on economic growth globally,” Chen said.

In a March 5 report to legislators, Premier Wen Jiabao said monetary-policy easing by “major developed countries” was contributing to inflationary pressure in China.

Yi Gang, deputy governor of the People’s Bank of China, reiterated this month that China is “fully prepared” for a currency war, although he said this could be avoided if policy makers observe the G-20 consensus.

Li Yining, a senior government adviser who wrote a book with Li Keqiang, the country’s incoming premier, said yesterday that China doesn’t approve of excessively loose monetary policies by other nations.

China’s foreign-exchange regulator, which is headed by Yi, warned in a report on Feb. 28 that quantitative easing will lead to capital inflows into emerging markets.

China has built up the world’s largest foreign-exchange reserves over the past decade as it controlled the value of its own currency, the yuan, to prevent gains and help exporters. The holdings were $3.3 trillion at the end of December.

— With assistance by Kevin Hamlin, and Lifei Zheng

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