Jan 23, 2024 - Economy

Currency weakness strikes China, but helps Japan

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

China's yuan and Japan's yen both slumped over the last year, with decidedly different outcomes for stock investors in the two Asian economic giants.

Why it matters: The divergent performance between Chinese and Japanese shares over the last year reflects the broader shifts in the global economy that have emerged post-COVID.

Driving the news: Japanese stocks hit a new 34-year high on Monday and are now less than 10% away from the boom-era high they touched in 1990.

  • Meanwhile, shares in mainland China had another ugly day, with the Shanghai Composite index dropping 2.7%, the worst day since April 2022.
  • The broad index of mainland shares is down roughly 20% over the last year.

Between the lines: One way to understand the difference between the two countries is by looking at the currencies. Both have fallen more than 10% against the dollar over the last two years.

Yes, but: In Japan, the decline of the yen has boosted corporate earnings and confidence in the country's traditionally important export business with the U.S.

  • A weaker currency was also traditionally a boon for Chinese exporters too.
  • But tensions with the U.S., where the Biden administration has kept Trump-era restrictions on some Chinese exports in place, means the impact of a weakening yuan won't do as much to help reinvigorate the struggling Chinese economy as it once might have.

The bottom line: If anything the Chinese government has appeared concerned that the yuan's weakness might go too far, amid a surge of capital outflows from the country.

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