Jonathan Yates: Legendary investor Jim Rogers once declared that a weak currency is evidence of a weak economy, which is evidence of a weak government. Japan is all for a strong currency — for China.
In an article in The Wall Street Journal by Lingling Wei, Bob Davis and Takashi Nakamichi, it was reported that, “A wide-ranging currency agreement struck this weekend between China and Japan is expected to give the Chinese yuan a more powrful role in international trade, but substantial barriers remain before the yuan can emerge as a currency powerhouse.”
As detailed in previous articles on www.emergingmoney.com, the yuan (NYSEARCA:CYB) is becoming more accepted in international commerce. This will eventually raise its value, due to basic supply and demand matters.
The Wall Street Journal article, “Tokyo signals support for yuan,” noted that China and Japan will now trade in yuan/yen transactions, without having to convert to a U.S. dollar first.
In addition, Japan (NYSEARCA:EWJ) will now hold the yuan in its foreign reserves, which now consists mainly of the US dollar.
The stronger the yuan becomes, the better for Japanese exporters who sell in foreign currency but add up their book in yen (NYSEARCA:FXY).
A stronger yuan also means Chinese exports are much less competitive against those from Japan as Japanese exports to China become that much more of a bargain for consumers.
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