Japan's Finance Minister said on Saturday he told Chinese Premier Wen Jiabao he expects China to make a wise decision about its yuan currency amid international pressure for China to let it strengthen. "The issue of the yuan, currencies and excess liquidity are related to each other. I told him that," Naoto Kan, who is also deputy prime minister, told reporters after meeting Wen in Beijing on Saturday.
"But I did not tell him what to do." Kan also said he warned Wen about the impact of an asset bubble on the economy, following on from Japan's own experience with a property bubble in the 1980s. China has come under pressure from some Group of Seven rich nations to revalue its currency, which critics say it keeps artificially low, giving it an unfair export advantage and hindering more balanced economic growth.
But Wen said arguments on the issue should not be made in a one-sided manner, Kan told reporters. "He told me that there are various relations with regard to trade, such as Japan-China, US-China and EU-China, so things should not be said unilaterally," he added.
"Generally speaking I think that's right. With regard to Japan-China trade, Japan has no major problems... but relations vary with other countries, so I told him that I expect China to make a wise decision." Saturday's meeting between Kan and Wen was held ahead of regular bilateral talks between finance officials from both sides, the third in a series, aimed at deepening financial dialogue between Asia's two economic giants.
Speaking at a news conference after the financial talks, Kan said the two sides did not discuss the yuan further. Instead, they agreed to support further development of their "strategically reciprocal relations", he said. They also agreed to meet again in Tokyo next year.
The two sides shared the view that while the global economy is on a gradual yet firm recovery path, uncertainty remains. "We agreed to keep working together to ensure recovery from the financial crisis," Kan said. "As for Japan, I told them that we are not at a stage where we can adopt an exit strategy" from stimulus measures taken in the wake of the financial crisis.
Kan said he asked Wen to visit Japan in the near future and that the Chinese premier gave him a positive response. In Washington on Friday, US Treasury Secretary Timothy Geithner said the Obama administration wants to "maximise the chances" that China will quickly lift the value of the yuan and expressed confidence Beijing would decide doing so was in its interest.
His comments, which come as the Treasury Department prepares a hotly anticipated report that could brand China a currency manipulator, suggested the Obama administration was wary of applying too much pressure on China. Beijing has kept the yuan steady since July 2008, when the global financial crisis significantly worsened, after allowing it to gradually rise for the previous three years.
Tokyo believes that a more flexible yuan is desirable for world economy and China, which has taken over from the United States as Japan's No 1 export destination. But it has been more reserved than some of its G7 peers in its criticism of China's currency system on the view that pressuring Beijing could backfire.