China Faces Pressure Over Currency

China is coming under new pressure from Pacific Rim countries to let its currency rise amid rising concerns about the damage weakness in both the yuan and dollar could inflict on Asian economies, even as Washington reiterated support for the falling dollar.

 The finance ministers of the 21-member Asia-Pacific Economic Cooperation grouping, which includes the U.S., China and Japan, "agreed that flexible prices, including exchange rates and interest rates" are important to achieving "sustainable global growth," according to a draft of their concluding statement.

 Meanwhile, U.S. Treasury Secretary Timothy Geithner, speaking in Tokyo on Wednesday before joining fellow APEC finance ministers for their meeting Thursday in Singapore, said "it's very important for the U.S. and the economic health of the U.S. that we maintain a strong dollar." Mr. Geithner cited its importance for the economic health of the U.S. and confidence among "investors around the world." Despite his comments, the dollar sagged to a 15-month low against a basket of major currencies Wednesday.

 APEC's expected call for currency flexibility, generally viewed as code for a rise in the yuan, comes as China's central bank made a rare change to the official language of its exchange-rate policy, giving a nod to concerns about the declining dollar and surging capital inflows.

 The People's Bank of China said in a quarterly report it will take into account "changes in international capital flows and the trends of major currencies" in exchange-rate policy.

 It's not clear how the new wording might change the PBOC's policy of essentially pegging the yuan to the sliding dollar -- which hurts the export-reliant economies of many other Asian nations. Over the weekend, the International Monetary Fund said the yuan was "significantly undervalued."

 However, the sensitivity of the currency issue will probably keep APEC leaders from focusing too much attention on it at their summit in Singapore.

 "We all know that boils down to the renminbi's exchange rate," said Kazuo Kodama, press secretary for Japan's Foreign Ministry, referring to the Chinese currency.

 Such discussion "should be done quietly, behind the scenes, between the U.S. and China," Mr. Kodama told reporters. "I don't think [the yuan] will be raised in the APEC process."

 Washington's claims to back a strong dollar are falling on increasingly skeptical ears as many Asian central banks regularly sell their currencies for dollars to prop up the U.S. currency.

Thai Finance Minister Korn Chatikavanij said his country's central bank has bought some $15 billion so far this year and that the persisting weakness of the Chinese yuan will likely require further intervention by Asian central banks.

 "We're building up effectively greater level of U.S. dollar reserves," Korn told Dow Jones in an interview. "I'm convinced that in the long term the dollar is more likely than not to decline in value, so we're building up assets that are declining in value over time. That's not healthy."

But Thailand's Mr. Korn said, "There is not much you could do to correct what is reality. The fact is when you've got that much debt ... the only effective way of repaying that debt is basically devaluing your currency."

 The U.S. budget deficit in the first three months of the fiscal year 2009 was $485.2 billion, exceeding the previous full-year deficit of $455 billion and triple the fiscal 2007 deficit of $161 billion.

 Some Asian governments are concerned about the inflow of speculative money into their currencies.

 Late Tuesday, Taiwan's financial regulators said it was banning foreign investors from parking funds in time deposits on the recommendation of the central bank.

 "We are not imposing any capital controls, at least for now," Spencer Lin, the head of the central bank's foreign-exchange department said Wednesday. Another senior central bank official, who declined to be named, said some foreign institutional investors have put unusually large amounts of money in time-deposit accounts. Mr. Lin said foreign investors "should buy stocks or bonds" instead, as the use of time deposits suggests speculation in the New Taiwan dollar.