Japan Sees ‘Enormous’ Potential Impact From Yuan Devaluation

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China’s currency devaluation may have an enormous impact if it isn’t managed well, according to Yasutoshi Nishimura, Japan’s deputy economy minister.

China roiled global markets last week with its biggest sell-off of the yuan in two decades, days after a slide in exports. The People’s Bank of China said it was an attempt to bring the official reference rate closer to the market rate.

“If China does not manage this well, when something happens it would have an enormous impact,” Nishimura said in an interview Monday at his Tokyo office. “We expect them to manage it appropriately.”

The devaluation weakened the currencies of some Asian countries that compete with China for exports, sending developing-nation stocks in a bear market. The yen, which has fallen about 45 percent against the dollar since Japanese Prime Minister Shinzo Abe came to power in December 2012, has so far withstood the slide in the yuan.

China is taking appropriate short-term measures to support slowing growth, Nishimura said, adding that Japan wants China to stay on course for a free flotation of the currency and structural reforms over the longer term.

China’s slowdown contributed to Japan’s economy contracting 1.6 percent in the April-June quarter, the deputy minister said. Nishimura said there had been a fall in exports of electronic parts and machine tools to China and a substantial drop in lending by Japanese financial institutions in China.