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Bank of Japan to smooth China's G7 debut

TOKYO - The Bank of Japan could play a key role in encouraging China to facilitate a soft landing for its economy and to implement currency system reforms at the upcoming Group of Seven (G7) nations meeting of finance ministers and central bankers. The session begins October 1 in Washington.

The BOJ has established close ties with its counterpart People's Bank of China through the signing of a yen-yuan currency swap agreement.

Instead of inking such an agreement for dollars as it has done with other Asian nations, the BOJ is believed to have arranged this program as a way to show its support for the liberalization of China's currency system.

In addition, the BOJ's decision to open a representative office in Beijing at a time when it is striving to improve operational efficiency at overseas bases clearly shows the central bank's emphasis on China.

Some observers even suggest that recent Chinese policies such as those involving the bolstering of loan risk management are grounded in advice from the BOJ.

It is significant for China that top Chinese officials were invited to the G7 gathering, because the country can showcase its appearance at the meeting as a symbol of its economic prowess. But the most immediate issue for China, which is scrambling to place its economy on a stable course, is the disposal of non-performing loans rather than currency system reform. Without the resolution of such bad loans, the outlook for currency system reform is not likely.

In contrast to the United States, which has vocally lobbied China for yuan revaluation, the BOJ's efforts to work with China have been less visible.

The Japanese central bank, however, now faces the task of seeking out China's true intentions and then encouraging the nation to make precise policy moves.

For this reason, the BOJ's ability and strategies in such areas will be put to the test.

(Asia Pulse/Nikkei)

Sep 30, 2004

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