The Chinese yuan may rise more than 10 percent this year against the dollar, allowing Japanese policy makers to accept further gains in the yen, Japan's former top currency official, Eisuke Sakakibara, said.

 

China's currency has strengthened 1.4 percent this year, on course for the biggest monthly advance since the end of a dollar peg in July 2005, as the government seeks to curb inflation, Bloomberg News reported.

 

The Group of Seven industrialized nations have called on China, Japan's biggest trading partner, to speed up yuan appreciation.

 

"Chinese authorities now recognize that they need to appreciate their currency quite significantly for their own sake," Sakakibara, 66, currently a professor at Tokyo's Waseda University, said in an interview with Bloomberg Television.

 

A rising yuan would make Chinese goods more expensive in global markets, bolstering the competitiveness of Japanese exporters. The yen may advance as much as 12 percent to 95 per dollar by summer as the US economy slows and the Bank of Japan refrains from intervention to slow the rally, he said.

 

Sakakibara was dubbed "Mr Yen" because of his ability to influence the foreign-exchange market during his 1997-1999 tenure at the finance ministry. He correctly forecast in an interview in October that the dollar would plunge against the yen because of the risk of a US slump.

 

Sakakibara's forecast suggests the yuan will rise beyond 6.57 per dollar by the end of the year. That is more bullish than the 6.80 median estimate of 32 analysts surveyed by Bloomberg News. Forward contracts show traders are betting on an 8.4 percent advance to 6.6390 in the next 12 months.

 

Sakakibara said yesterday that Japan's central bank is unlikely to intervene to slow the yen's advance because the US government is opposed to interfering with currency markets.

 

"Mr Sakakibara is too bullish on the yuan," said Xinyi Lu, chief strategist at the international treasury division at Mizuho Corporate Bank Ltd. in Tokyo, a unit of Japan's second largest publicly trader lender. "China is aiming for a soft landing on a plateau of slower growth without excessive appreciation of the yuan."

 

The currency may end the year at 6.8, Lu said.

 

(Shanghai Daily January 30, 2008)