Asia Times Online :: Japan, China bypass US in currency trade
Japan and China on Friday started direct trading between the yen and the yuan in Tokyo and Shanghai, by-passing the need first to exchange either currency into the US dollar. The move should strengthen bilateral trade between the two economies while marking an important step in the internationalization of the yuan. - Kosuke Takahashi (Jun 1, '12)
Japan, China bypass US in currency
tradeBy Kosuke Takahashi
TOKYO - Japan and China
started direct trading of their currencies, the yen and the yuan, on the
inter-bank foreign exchange markets in Tokyo and Shanghai on Friday in an
apparent bid to strengthen bilateral trade and investment between the world's
second- and third-largest economies.
Direct yen-yuan trades also aim to
hedge the risk of the dollar's fall in the long run as the world's key
settlement currency and as the main reserve currency in Asia, the world's
economic growth center in the 21st century. By skipping the dollar in
transactions, the region's two biggest economies intend to reduce their
dependence on dollar risk and US monetary authorities' influence on the Asian
economy - aiding China's goal of undercutting US influence in the region.
It is the first time that China has allowed a major currency other than the dollar to directly trade with the yuan. For Beijing, this new step
brings benefits of further internationalization of the yuan. For Tokyo, the
possible future correction of China's still artificially undervalued yuan may
bring the plus of a weaker yen, boosting profits of Japanese exporters such as
Toyota and Sony in the long run.
Japan's three megabanks - Mitsubishi
UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group
- began direct yen-yuan trades with major Chinese banks on Friday. Exchange
rates between the yen and the yuan will be determined by their transactions,
delinking the current "cross rate" system in which the US dollar intermediates
in setting yen-yuan rates.
"We can lower transaction costs and reduce
settlement risks at financial institutions as well as making both nations'
currencies more useful and energizing the Tokyo market," Japan's Finance
Minister Jun Azumi said on May 29.
China welcomed the new trading
agreement with much fanfare.
"This will help lower currency conversion
costs for economic entities, facilitate the use of RMB [the renminbi, as the
Chinese currency is also referred to] and Japanese yen in bilateral trade and
investment, promote financial cooperation and enhance economic and financial
ties between the two countries," the People's Bank of China (central bank) said
in a statement.
Skipping the dollar
Up until Friday, Japanese
and Chinese firms had paid currency conversion fees twice. For Japanese
companies, they first had to convert the yen into the dollar, then they
exchanged the dollar for the Chinese currency. For Chinese firms, it was vice
versa. With this removal of the interim step by skipping the dollar in
transactions, many expect cost reductions.
Japan ranks fourth among
China's trading partners after the European Union, the United States and the
10-country Association of Southeast Asian Nations (ASEAN), while China has been
Japan's largest trading partner for the past three years.
Bilateral
trade rose 14.3% year-on-year to reach US$344.9 billion in 2011. For Japan,
China accounts for about 20% of its world trade value. Around 50% to 60% of that
is being settled in dollars, with less than 1% of it settled in yuan. One
Chinese news outlet has estimated direct yen-yuan transactions will realize $3
billion in cost savings.
There are still cautious views on the scale of
cost reductions among Japanese market participants.
"Dollar-yen
transaction costs are already very low," Daisuke Karakama, market economist at
Mizuho Corporate Bank in Tokyo, said on Thursday. "The cost reduction effect of
direct yen-yuan trading should be limited."
Internationalization of
the yuan
For China, this new trading is a step in its moves to
internationalize the yuan, accelerating the currency's wider use. More than 9%
of China's total trade was settled in yuan last year, up from only 0.7% in 2010,
according to Xinhuanet.
Yuan-denominated trade between the mainland
China and Hong Kong started in July 2009, as Beijing allowed companies in
Shanghai and four cities in the southern province of Guangdong to use yuan in
trade with Hong Kong, Macau and members of ASEAN. In July 2010, China also
allowed the yuan to be more freely traded and transferred in Hong Kong,
establishing an offshore yuan market for the first time.
But many
experts such as Mizuho's Karakama believe China will soon face a trilemma in its
economic policy.
An economy cannot combine at the same time a
non-floating dollar peg currency, free capital mobility and autonomy in its
monetary policy. Developed nations such as Japan and South Korea abandoned a
dollar peg system in order to secure international inflows of money and
discretionary monetary policies. (In contrast, countries using the euro
abandoned individual monetary policy by consolidating their financial policy
instruments to the European Central Bank.)
In April, the People's Bank
of China announced it would widen the yuan's daily trading limit against the
dollar to 1% from 0.5%.
"With the internationalization of the yuan, it
will become more and more difficult for China to control the yuan," Karakama
said.
Should China shift to a limited floating exchange rate system, the
yuan will likely appreciate against major currencies such as the dollar. With
Japan's business with China expanding and the presence of the yuan increasing in
Japan's international trade, this will push down the yen's effective exchange
rate against major currencies. Annual trade between China and Japan more than
doubled in the past 10 years.
Kosuke Takahashi is a
Tokyo-based Japanese journalist. His twitter is @TakahashiKosuke
(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved.
Please contact us about sales, syndication and republishing.)
Friday, June 1, 2012
Wednesday, May 30, 2012
My latest for Asia Times : Pyongyang starts to feel the heat
Pyongyang starts to feel the heat
North Korea, facing its worst drought for half a century after little rainfall for more than 40 days, may soon have to appeal for help from China and international organizations such as the World Food Programme. A rare admission of vulnerability last week signals probable delay in Pyongyang's third nuclear test. Having blown a barter deal with the United States, it has little choice but to comply with Beijing's wishes. - Kosuke Takahashi (May 30, '12)
Pyongyang starts to feel the heat
By Kosuke Takahashi
TOKYO - North Korea, in a rare admission of vulnerability, late last week announced to the outside world that it is suffering the most severe drought in half a century and that its vast agricultural lands have been damaged.
If the drought persists, the subsequent crop failure could exacerbate already dire food shortages in the hunger-stricken nation. This will test the leadership capabilities of North Korea's young dictator Kim Jong-eun, whose new government has placed a high priority on the food problem as "a burning issue in building a thriving country".
Ordinary North Koreans may be raising fears that the impending natural disaster will cause something similar to the "great famine" of the 1990s. This comes at a critical time, with power only recently having been transferred to Kim Jong-eun following the death of his father, Kim Jong-il, last December.
During the famine in the 1990s, called the "arduous march", millions of people died of starvation, as Kim Jong-il succeeded his father Kim il-sung, the founder of the nation, in 1994. The official propaganda "arduous march" was also used amid Kim Il-sung's guerrilla resistance to Japanese occupation in the late 1930s.
"North Korea began to disclose bad things through a change in leadership," Mitsuhiro Mimura, director and senior research fellow at the Economic Research Institute for Northeast Asia in Niigata prefecture, told Asia Times Online. "The happening of the natural disaster has no blame attached to Kim Jong-eun and is easy to disclose. By stressing substantial damages, Pyongyang is appealing for food aid to the rest of the world." Mimura specializes in the North Korean economy.
"West coastal areas of the Democratic People's Republic of Korea [DPRK] experience a long spell of dry weather," the North's official Korean Central News Agency (KCNA) said on May 25. "This is an abnormal phenomenon witnessed in the country in 50 years."
If it doesn't rain by the end of the month, the drought will be recorded as the worst since 1962, the news agency said.
The drought has hit North Korea's southwestern rice belt, such as South Hwanghae province known as the "bread-basket" of the hermit kingdom. Except for east coastal areas and northern high-mountain regions, there has been little rainfall in the country for more than 40 days, affecting 40% of farmland, the news agency said, adding that in Pyongyang just 2 millimeters of rainfall was registered in the past 30 days.
During the infamous famine of the 1990s in the wake of a vicious circle of devastating floods and the subsequent drought, the northern regions of the country were said to be much better off than the south, in part because of the geographical closeness to China. People in the north could barter for food with China, while those in the south were geographically isolated. This pattern could happen again.
It is not uncommon for the Korean Peninsula to suffer severe droughts historically. For example, during the Joseon Dynasty (1392-1910), droughts that continued for more than two years occurred 23 times, according to the Korea Institute of Construction Technology, a public research institute based in South Korea.
Most notably, about a million people, nearly 20% of the population, starved to death during the drought-induced famine of 1671, the institute said.
"The drought has badly affected the transplant of corn seedbeds and rice planting," North Korea's official daily newspaper, Rodong Sinmun, said on May 25. "Wheat, barley and potato fields have been damaged."
Still, more than a few experts have pointed out that the drought may not have a major impact on rice yields because rice planting is not in full swing.
"There are still one or two months left before a rice-planting season in North Korea," Masao Okonogi, a research professor at the Research Center for Korean Studies of Kyushu University in Fukuoka City, said. "The incoming amount of precipitation is a key."
Looking anew at the world, La Nina in the Pacific Ocean off the coast of Peru seems to have caused abnormal weather conditions worldwide, let alone North Korea. South American nations such as Brazil and Argentine are also suffering droughts, skyrocketing soybean futures prices in Chicago. In northeastern Brazil, severe drought - also the worst in 50 years - has even triggered fighting in rural areas
Water is life. An average of one person a day is being killed in "water wars", while scores of animals led to debilitation and death, the Brazilian newspaper O Globo has reported. Even in Tokyo, an abrupt weather change due to atmospheric instability is frequently occurring in recent weeks, alternating between thunder showers and clear sky.
There are expectations that North Korea will officially ask for help from China and international organizations such as the World Food Programme if the drought continues, and this would make it difficult for Pyongyang to carry out a third nuclear test in the coming months - to meet Beijing's wishes.
Food relief, however, is unlikely to come from the US and South Korea following Pyongyang's internationally-condemned rocket launch on April 13. The US suspended a plan to deliver 240,000 tons of food as the two nations' "Leap Day deal" bartering food aid for nuclear concessions came apart.
Still, Pyongyang seems to welcome continuing bilateral negotiations with the US.
"The DPRK will never need even a single nuke when the US renouncement of its hostility towards it is confidently verified and its nuclear threat is completely defused," KCNA said on May 27. "This tells that the master key to the settlement of the above-said nuclear issue is in the hands of the US."
"The US would be well advised to behave in a responsible manner, bearing in mind that the prospect for the solution to the nuclear issue hinges on its attitude," it concluded.
"Pyongyang will conduct a third nuclear test once its negotiations with the US are completely cut off," Mimura said.
Okonogi echoed Mimura's views. "Kim Jong-eun needs to consolidate the foundation of his new-fledged regime. For him, all-out confrontation with the US in the wake of a third nuclear test cannot be a good choice now."
Both Mimura and Okonogi denied the view that severe food shortages would lead Pyongyang to adopt a hard-line foreign policy to divert people from dissatisfaction.
Kosuke Takahashi is a Tokyo-based Japanese journalist. His twitter is @TakahashiKosuke
(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
North Korea, facing its worst drought for half a century after little rainfall for more than 40 days, may soon have to appeal for help from China and international organizations such as the World Food Programme. A rare admission of vulnerability last week signals probable delay in Pyongyang's third nuclear test. Having blown a barter deal with the United States, it has little choice but to comply with Beijing's wishes. - Kosuke Takahashi (May 30, '12)
Pyongyang starts to feel the heat
By Kosuke Takahashi
TOKYO - North Korea, in a rare admission of vulnerability, late last week announced to the outside world that it is suffering the most severe drought in half a century and that its vast agricultural lands have been damaged.
If the drought persists, the subsequent crop failure could exacerbate already dire food shortages in the hunger-stricken nation. This will test the leadership capabilities of North Korea's young dictator Kim Jong-eun, whose new government has placed a high priority on the food problem as "a burning issue in building a thriving country".
Ordinary North Koreans may be raising fears that the impending natural disaster will cause something similar to the "great famine" of the 1990s. This comes at a critical time, with power only recently having been transferred to Kim Jong-eun following the death of his father, Kim Jong-il, last December.
During the famine in the 1990s, called the "arduous march", millions of people died of starvation, as Kim Jong-il succeeded his father Kim il-sung, the founder of the nation, in 1994. The official propaganda "arduous march" was also used amid Kim Il-sung's guerrilla resistance to Japanese occupation in the late 1930s.
"North Korea began to disclose bad things through a change in leadership," Mitsuhiro Mimura, director and senior research fellow at the Economic Research Institute for Northeast Asia in Niigata prefecture, told Asia Times Online. "The happening of the natural disaster has no blame attached to Kim Jong-eun and is easy to disclose. By stressing substantial damages, Pyongyang is appealing for food aid to the rest of the world." Mimura specializes in the North Korean economy.
"West coastal areas of the Democratic People's Republic of Korea [DPRK] experience a long spell of dry weather," the North's official Korean Central News Agency (KCNA) said on May 25. "This is an abnormal phenomenon witnessed in the country in 50 years."
If it doesn't rain by the end of the month, the drought will be recorded as the worst since 1962, the news agency said.
The drought has hit North Korea's southwestern rice belt, such as South Hwanghae province known as the "bread-basket" of the hermit kingdom. Except for east coastal areas and northern high-mountain regions, there has been little rainfall in the country for more than 40 days, affecting 40% of farmland, the news agency said, adding that in Pyongyang just 2 millimeters of rainfall was registered in the past 30 days.
During the infamous famine of the 1990s in the wake of a vicious circle of devastating floods and the subsequent drought, the northern regions of the country were said to be much better off than the south, in part because of the geographical closeness to China. People in the north could barter for food with China, while those in the south were geographically isolated. This pattern could happen again.
It is not uncommon for the Korean Peninsula to suffer severe droughts historically. For example, during the Joseon Dynasty (1392-1910), droughts that continued for more than two years occurred 23 times, according to the Korea Institute of Construction Technology, a public research institute based in South Korea.
Most notably, about a million people, nearly 20% of the population, starved to death during the drought-induced famine of 1671, the institute said.
"The drought has badly affected the transplant of corn seedbeds and rice planting," North Korea's official daily newspaper, Rodong Sinmun, said on May 25. "Wheat, barley and potato fields have been damaged."
Still, more than a few experts have pointed out that the drought may not have a major impact on rice yields because rice planting is not in full swing.
"There are still one or two months left before a rice-planting season in North Korea," Masao Okonogi, a research professor at the Research Center for Korean Studies of Kyushu University in Fukuoka City, said. "The incoming amount of precipitation is a key."
Looking anew at the world, La Nina in the Pacific Ocean off the coast of Peru seems to have caused abnormal weather conditions worldwide, let alone North Korea. South American nations such as Brazil and Argentine are also suffering droughts, skyrocketing soybean futures prices in Chicago. In northeastern Brazil, severe drought - also the worst in 50 years - has even triggered fighting in rural areas
Water is life. An average of one person a day is being killed in "water wars", while scores of animals led to debilitation and death, the Brazilian newspaper O Globo has reported. Even in Tokyo, an abrupt weather change due to atmospheric instability is frequently occurring in recent weeks, alternating between thunder showers and clear sky.
There are expectations that North Korea will officially ask for help from China and international organizations such as the World Food Programme if the drought continues, and this would make it difficult for Pyongyang to carry out a third nuclear test in the coming months - to meet Beijing's wishes.
Food relief, however, is unlikely to come from the US and South Korea following Pyongyang's internationally-condemned rocket launch on April 13. The US suspended a plan to deliver 240,000 tons of food as the two nations' "Leap Day deal" bartering food aid for nuclear concessions came apart.
Still, Pyongyang seems to welcome continuing bilateral negotiations with the US.
"The DPRK will never need even a single nuke when the US renouncement of its hostility towards it is confidently verified and its nuclear threat is completely defused," KCNA said on May 27. "This tells that the master key to the settlement of the above-said nuclear issue is in the hands of the US."
"The US would be well advised to behave in a responsible manner, bearing in mind that the prospect for the solution to the nuclear issue hinges on its attitude," it concluded.
"Pyongyang will conduct a third nuclear test once its negotiations with the US are completely cut off," Mimura said.
Okonogi echoed Mimura's views. "Kim Jong-eun needs to consolidate the foundation of his new-fledged regime. For him, all-out confrontation with the US in the wake of a third nuclear test cannot be a good choice now."
Both Mimura and Okonogi denied the view that severe food shortages would lead Pyongyang to adopt a hard-line foreign policy to divert people from dissatisfaction.
Kosuke Takahashi is a Tokyo-based Japanese journalist. His twitter is @TakahashiKosuke
(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
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