Can Japan become world's 2nd biggest economy again?
HIROSHI MURAYAMA, Nikkei senior staff writer
TOKYO -- What are the chances of Japan overtaking China in terms of gross domestic products in U.S. dollars in the near future? Well, first of all it is important to consider what the overall effect on the global economy would be, and who, if anyone, would benefit.
In 2015, Japan's GDP stood $4 trillion while China's was about $11 trillion. For the situation to be reversed, the yuan would need to go through a period of excessive depreciation and the yen would need to appreciate. But such a situation would likely throw global financial markets into further confusion and potentially lead to a global economic crisis.
Although most would see this as less than desirable, it is well worth considering what might happen if the worst came to the worst.
Looking at the yuan's effective exchange rate is a useful way of putting the currency's outlook into perspective. The index describes the changes of the yuan's value relative to not only the U.S. dollar but also the euro and other major currencies as a whole. It is the weighted average of its exchange rate changes against a basket of other currencies calculated using factors such as the volume of trade.
Taking the yuan's EER announced by the Bank for International Settlements for 2010, as 100, the currency rose to 131.08 in November 2015. In other words, the yuan appreciated over 30% against other currencies from its 2010 level.
The yen and other major currencies have considerably depreciated against the dollar during the same period. The euro is now quoted at around 0.92 per dollar, compared with 0.75 in December 2010, while the yen has plunged in value to around 117 from 81, representing falls of 20% and 40% against the dollar, respectively.
In contrast, the yuan has appreciated slightly against the dollar. As a result, its value against the yen and euro has gone up markedly.
The yen, for example, has depreciated to 17.9 per yuan from 12.5 at the end of 2010.
This puts China in a tricky position in terms of exports to the eurozone and Japan. For the country to regain its export competitiveness of 2010, the yuan needs to depreciate by around 20-30% against major currencies.
The Chinese government began late last year to tolerate gradual falls in the value of the yuan while holding off a dramatic plunge by resorting to dollar-selling and yuan-buying interventions.