China's yuan is fixed to the dollar at a rate of about 8.3 and Japan, the sole G-7 member to frequently intervene in markets, sold an unprecedented 9.03 trillion yen ($76.8 billion) from January through July in an effort to weaken the currency and boost exports.
Japan is fixing itself at 115 Yen to the dollar (this is better than 10X of what China is doing and Japan is the #2 economy on the Planet ???) and they are also backing the US in trying to get China off of their peg to the dollar. China has a negative balance of payments overall, just like the US but of course not as big. Japan has an enormous, massive, positive balance of payments and is using this to keep the Yen weak and the balance to buy out Asia (which includes China).
Basically Japan is getting tired of doing all the dirty work of keeping the dollar strong and their Yen weak. Then all China has to do is say 'our Yuan is 8.3 times US dollars and it doesn't cost them 2¢.
OK, here's the real question. How come China doesn't further weaken the Yuan rather than keep it at a 8.3 multiple. The simple answer is they are not financially able. Japan is and is the one keeping the dollar strong so that the US markets and manufacturing can be raided.
Haven't come up with the whole story but I can say that once all of the manufacuring and all of production including services gets raided and placed in Asia (China and India), the dollar will drop and the Yuan & Yen will rise obviously. Especially when Japan stops supporting the DOLLAR. Then, as now Japan will have an advantage over China (especially if the Yuan rises; the Yen will still be weaker than the dollar and the Yuan.
Who becomes #1 on the Planet at that point, huh ? Japan is the 3rd party running this whole scenario and until they get what they want the Yuan is not going to move and when it does, Japan will still have the trading advantage with China and the US will be out of the picture.
Toooo much attention on China and not the macro picture. Tooo much rhetoric and not enough big picture. Many factors have been left out to keep this simple. There is a war going on behind the scenes and this is not being mentioned anywhere by anybody. Business as usual, don't rock the boat or scuttle it with fact.
Who is Japan selling $77B of "stuff" to? What do they get in return?
Before I do, let me say that you really have to get an altruistic view of things. You have to get away from the bias of being an American because the old conumdrum of is the glass half full or half empty comes into play. You almost have to go to the Moon and set up and then look down upon things to get the true picture.
Selling Yen is the same as buying dollars but stated from different perspectives. The actual transaction is a Yen (115 of them) is used to buy a dollar or a dollar is used to by a Yen (115) of them in which case the your are buying Yen that are being sold by using one dollar. Both are being bought or sold, it just depends on whether you are the guy with the dollar or the Yens and then it still depends on whether you make the distinction that you are buying or they are selling.
A little confusing, huh ? But it's all in how the person making the communication wants things to look like. 'Is the glass half empty or half full and are you getting or giving the glass with 1/2 of its volume containing water.'
The "STUFF", well that can be dollars or any financial instrument being bought with dollars that are in Japan or with Yen doing the purchasing. This takes dollars off the street and out of circulation and puts Yen on the street and into circulation. If you are Japan with the huge positive balance of payments you could use the dollars you have without having to print or give existing Yen to make the purchase. Obviously, using dollars you have makes the dollar strong or stronger and technically does not weaken the Yen. Whereas, the US printing more dollars with deficit government spending and negative balance of payments is doing its own part to weaken its own money, the dollar.
Maybe this is why Japan didn't purchase any treasuries in the last two weeks or so. Hmmmmm. What does that tell you.