Who Benefits from a Yuan Revaluation?

Japan likely to benefit most if the Chinese really do allow the yuan to appreciate

Once again, pressure is being placed on China to allow the yuan to appreciate. The Chinese government still strictly controls the value of the yuan (also called the renminbi), and finds it beneficial to keep the yuan relatively weak. However, the imbalance this creates in the world economy and in terms of trade has many major nations upset. So, every so often, the nations get together and ask China to revalue the yuan and allow it to appreciate to something more in line with market forces.

While some think that the U.S. dollar would gain something from yuan appreciation, the biggest benefits would go to Japan. GFT’s Boris Schlossberg explains in FX360 why Japan would benefit from yuan appreciation:

Amongst the G-10 the yen will be the biggest beneficiary of any potential yuan revaluation because Japan both competes with China globally and at the same time exports heavily to that market. In fact China is Japan’s largest export market exceeding even US. Thus, Japanese manufactures should be able to earn more income on their Chinese revenues and at the same time find some relief on their margins in their battle with Chinese competitors.

Of course, the yuan is not likely to really appreciate very much. No matter the pressure brought to bear, or the posturing by the Chinese is likely to change things — mainly because China has the upper hand right now in almost every economic way. Any revaluation of the yuan will be very slow, and have a minimal impact.