Re: the fed and the yuan (and yen)

["Devine, James" <jdevine@xxxxxxx>]

Jonathan writes:>Thanks for your response. But if it's in the US' interest to devalue the
dollar relative to other currencies, then why is the US willing to allow
Japan to intervene to prevent the yen from appreciating?<

I would guess that it's because the Japanese economy is in big trouble (and is no threat to the US -- except if the economy there really melts down) and would be in even bigger trouble if the Yen rose significantly. On the other hand, keeping the yuan from rising relative to the dollar intensify's China's deflationary impact on the world (which is bigger than Japan's). Japan is also more of an ally, politically and militarily. 

>(http://www.nytimes.com/2003/07/19/business/19EURO.html - as if China's not
going through a 'tough set of things') Is it Japan/US vs. EU/China? The
greater current account deficit with China?<

China's having trouble, but not in terms of GDP growth (at least not anything like Japan).

>Also, how does the fact that Japan-China-Hong Kong together have about 800
billion dollars in US denominated reserves fit into the picture?<

A falling dollar would hurt the value of those reserves in the domestic currency, which is one reason why China-HK keeps the yuan/dollar rate constant and Japan keeps the yen/dollar rate from rising too much. It's not the only reason: both countries are export-oriented and would be hurt big time by rising Yens or yuans.

I hope this helps. I should mention that I'm not an expert on this subject. 

Jim