world growth

world growth

Tuesday, June 22, 2010

Chinese currency policy may negatively affect Japan

Many countries, including the US, have welcomed the Chinese government’s decision to make it’s currency policy more flexible. However, with the complicated intertwining of the economies of China and Japan, the impact of the new policy could be harmful to the island country.

Many companies from Japan have manufacturing locations in China where they produce a variety of goods sold both in Japan and to export to other countries. A higher yuan could hurt some of these companies as the costs of raw materials and labor will rise. This could really hurt some of the companies, such as Toyota, who are already dealing with labor issues in their coastal factories.

There are some businesses in Japan who would benefit from a stronger yuan, on the other hand. The biggest to benefit would be those producing heavy equipment for the construction industry, which is very strong in China right now. These companies would see increased profits from the trade.

Japan imports more than $125 billion in Chinese goods annually, particularly apparel and food stuffs. At the same time, China imports $112 billion in goods from Japan and those numbers are getting closer every year.

Economists say that trade with China is a major factor in the recovery Japan has been experiencing and that it shows no sign of slowing down. While some things that are being exported to China from Japan may get some price increases it may help the Japanese economy with the deflation they have been fighting.

Another result of the stronger yuan could help Japan in a different direction and that is with tourism. There has been a rising interest in Chinese tourists as they find it relatively inexpensive to vacation in Japan. There has been so much demand that last month, Japan made it easier for the Chinese to get visas.