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Nomura’s Kan Sees Yuan Appreciation in May, Says Yen May Weaken

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Nomura’s Kan Sees Yuan Appreciation in May, Says Yen May Weaken
April 13, 2010, 12:30 AM EDT

April 13 (Bloomberg) -- China may allow the yuan to appreciate as early as next month as inflation accelerates, a move that may also weaken the yen, according to Nomura Institute of Capital Markets Research.

China is likely to let the yuan rise 5 percent per year against the dollar, said Shiyu Kan, a Tokyo-based senior fellow at the research unit of Japan’s biggest brokerage, reiterating a call he made in February. China may double the currency’s trading band to 1 percent, or allow an immediate 3 percent rise in its daily reference rate, he said.

With the economic recovery fueling inflation “it’s easy for China to depict a story that the nation is revaluing the currency for itself,” Kan said. “China will be able to move right away only if it can see one condition met -- that it’s not revaluing under U.S. pressure.”

At a meeting in Washington, President Barack Obama urged China to move toward a “more market-oriented exchange rate,” while Chinese President Hu Jintao said his country would follow its own path toward revaluing the yuan.

Hu said any such action by China must be “based on its own economic and social-development needs,” the nation’s official Xinhua news agency reported.

China’s consumer prices rose 2.7 percent in February, after rising for the first time in 10 months in November. The nation posted its first trade deficit in six years in March. Still, with exports increasing 24.3 percent, “that won’t prevent China from revaluing the yuan,” Kan said.

Japan’s Exports

A stronger yuan won’t undercut the export competitiveness of Chinese products, thereby driving up the yen, as few Japanese companies besides textile makers compete with Chinese firms, according to the researcher.

Many Japanese companies, such as Fast Retailing Co., Japan’s biggest clothing retailer, are in a “complementary relationship” with Chinese suppliers, Kan said. The yuan’s appreciation will increase costs for Japanese manufacturers, who may in turn pass the burden onto consumers, eroding the companies’ export competitiveness and sapping demand for the yen, he said.

China may allow the yuan to appreciate by June 30 while avoiding a one-time jump in value that might curb exports, a survey of analysts showed.

Twelve of 19 respondents polled by Bloomberg said China’s central bank will allow the currency to float more freely this quarter, five expect it to happen by Sept. 30, and the rest expect the move by year-end. Eleven see no one-off revaluation, while eight forecast an immediate gain of between 0.5 percent and 5 percent. Fifteen predict a wider daily trading range.

The trading band will be widened to between 0.75 percent and 3 percent either side of the central bank’s daily reference rate, from 0.5 percent now, the survey showed. The median estimate is for the yuan to strengthen 3.1 percent to 6.62 per dollar by year-end. Estimates ranged from 6.4 yuan to 6.8 yuan in the survey carried out since April 9.

--With assistance from Patricia Lui in Singapore, Judy Chen in Shanghai, Frances Yoon in Hong Kong and Ven Ram in Singapore. With translation by Ritsuko Kameyama in Tokyo. Editors: Rocky Swift, Nate Hosoda


NO may NO june.........NOW DANG IT!!

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