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Will an appreciated Yuan prompt the Chinese to snatch up US assets the way the Japanese did in the 1980s?
We long to be seduced by historical parallels. Their powerful attraction lies in the promise that if we properly understand the relationship between two seemingly similar events, then that knowledge can help us predict the future—and perhaps even profit from it.
So are there compelling historical parallels between the appreciation of the Japanese yen some 25 years ago, and the impending rise of the Chinese yuan? Don’t bet the Treasury on it.
The temptation is to portray parallels between two powerful Asian economies in ascendency: Japan in the mid-1980s and China today. Both built national wealth on the back of exports, producing trade surpluses that led to political pressure from major trading partners. Both have spent some of that wealth on direct investments overseas. And both have experienced currency and trade friction influenced by politics and economics...
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