Bank of Japan Governor Masaaki Shirakawa warned China that an exclusive focus on currency revaluation could create problems in its domestic economy, Reuters reported. Speaking in New York, Shirakawa compared the pressure on China to revaluate to the pressure to let the yen appreciate that Japan succumbed to in the 1980s. According to Shirakawa, allowing the yen to appreciate while encouraging domestic demand created a bubble economy for Japan without reducing the current account surplus the country was running at the time. He warned the same fate could be in store for China if regulators focused on currency flexibility at the expense of other aspects of monetary policy. "It has now been acknowledged that the role expected of central banks does not match one-to-one with price stability. The experience of the bubble shows that even when prices are stable, the economy can experience huge swings," said Shirakawa.
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