China won't devalue as yen criticism eases


Dai says the yuan's rate against the dollar will hold steady and encourages Japan to keep a stable yen

HONG KONG, China -- China and South Korea on Tuesday eased off their criticism of the yen's run against the dollar.

China's central bank governor, Dai Xianglong, said his country has no plan to weaken its currency, the yuan.

"We hope the Japanese government will heed the views of Asian economies and maintain the stability of the Japanese yen," Dai said at a news conference.

"We will maintain the stability of the renminbi exchange rate," he added.

Renminbi -- literally 'People's Currency' -- is another term for the yuan. It is not pegged to the dollar, but the central bank manages its exchange rate to ensure it trades in a narrow band around 8.28 to the buck.

Dai, who also confirmed that China is investigating the former Bank of China president, warned further weakness in the yen could trigger a domino effect in Asian currencies.

Yen at strongest level in a week

Currency experts suggest China's criticism will fall on deaf ears.

"While Japan may be polite to China in public, we doubt if its protests carry much weight in private," the Bank of America said in a report on Dai's comments.

"We expect that officials will continue to talk up [the yen's dollar rate], albeit somewhat more cautiously than before."

Dai's comments coincided with a strengthening in the yen.

It hit its strongest level in more than a week against the dollar on Tuesday, at 131.05, and was trading just off that at 131.18 in European trade.

Malaysian Prime Minister Mahathir Mohamad said on Friday that his country's peg of 3.8 ringgit to the dollar could fall if China devalued its currency.

He said a yen exchange rate of 140 would cause Malaysia to reexamine its peg.

Mounting criticism

Officials in China and South Korea, and increasingly elsewhere in Asia, have heaped pressure on Japanese officials to stem the yen's rapid slide against the dollar.

When the yen weakens, it makes Japanese goods cheaper and more attractive overseas. But it makes life tough for Japan's trading partners and Asian companies making products that compete with Japanese goods.

Currency traders say Japanese officials have been encouraging the yen's slide with a series of comments suggesting they like it and will not intervene to strengthen the yen.

On Tuesday, the governor of the central Bank of Korea joined his Chinese counterpart in expressing hope that the Japanese government was heeding criticism from the rest of Asia.

Korean growth forecast 'very conservative'

"The yen's weakness is expected to continue given Japan's stagnant economy, but considering pressures, chances for a steep decline remain slim," BOK Governor Chon Chol-hwan said.

Chon said he raised his concern over the yen's slide with Bank of Japan Governor Masaru Hayami at a meeting earlier this month.

He noted that both China and South Korea are likely to oppose a dramatic move in the yen, while he said the United States would not tolerate a dollar that was excessively strong.

Chon also said the BOK's forecast from December that South Korea's economy would grow 3.9 percent in 2002 was a "a very conservative projection."