It seems the tensions between Japan and China over the South China Sea, Japanese Prime Minister Abe’s weak apology for World War II and his wife’s visit to Tokyo’s controversial war shrine have spilled over into the currency arena.
Japanese Finance Minister Taro Aso on Friday lashed out at China by saying that if the recent yuan devaluation is the beginning of frequent currency manipulation then Tokyo is going to have to take action.
Last week, China devalued the yuan by nearly 2%.
If this move was an effort by Beijing to make its currency system a market-based one, then Japan welcomed the change, Aso said. However, he warned China that Japan would be watching closely to make sure this move wasn’t just a way to give its exports a competitive advantage.
“Japan would face a tough decision on how to respond if China intervenes frequently in the market,” Aso told a news conference after a regular cabinet meeting.
It was unclear what kind of choices Aso was implying Japan might face.
Of course, Japan doesn’t have many legs to stand on here. Devaluing its currency against the dollar has been one of the three arrows of Abenomics, the prime minister’s economic plan. Since peaking at 75.35 yen to the dollar, the yen has fallen 60% to about 122 yen to the dollar.
And while the decline in the yuan hasn’t seriously affected the yen, any slowdown in China’s economy is going to have detrimental effects in Japan.