They also dismissed the excuses made by Japanese officials for defending their seemingly nonchalant attitude over yen's slide as unconvincing.

"Despite the official rhetoric that Japan does not want to artificially make the yen weaker, the reality is that Japan now acts as if it has a weak yen policy and has successfully pushed it weaker," said Stephen Jen, a London-based analyst with Morgan Stanley.

The Japanese Government appears to use a depreciating yen to expand exports and overcome chronic deflation with rising import prices, said Zhao Jinping, a senior fellow with the Development Research Center of the State Council.

The Japanese approach is to let the market determine whether the yen slides but then intervene if it strengthens, he said.

Responding to the appreciation of the yen following the weakening of the US dollar caused by the September 11 tragedy, the Japanese Government entered the market seven times to sell yen and buy the US dollar, thus bringing the yen back to its sliding track.

But when the yen hit a three-year low in December, Japanese officials quickly brushed aside concerns of other Asian countries, saying the yen's value reflected its economic fundamentals, an argument that Morgan Stanley's Stephen Jen dismissed as unsound.

"The economic fundamentals in Japan are poor, but they are poor virtually everywhere else in the world, and therefore should not be blamed as the cause of the weakness of the yen," he said.

Asian countries trade intensively with each other -- 55 percent of Asia's exports go to other parts of Asia.

"This is why intra-Asia competitiveness is such an important issue when thinking about currency policies," he said.

The yen/dollar rate stood at around 130.8 in markets at the end of last week. It has slid 15 percent since September, dragging down almost all the currencies in East Asia.

China, wanting to maintain the value of its currency, is also stymied -- a situation that was already reflected in its sharply decreased exports growth, expected to be at 5 percent last year versus 28 percent in 2000.

However, the Japanese view seems to be that China may not have the right to react even if the yen weakens.

Since last summer, Japan has conducted a massive campaign to establish a consensus that the renminbi is grossly undervalued.

"The 'China-bashing campaign' could have been a carefully planned precursor to the launch of the weak yen policy," Jen said.

The challenges that China faces are far more formidable than those confronting Japan.

"I would underscore that China still has a weak banking system, a very uncompetitive agricultural sector that employs close to 60 percent of the labor force, and a manufacturing sector that is likely to face a tidal wave of competitive pressure from the rest of the World Trade Organization members in coming years," he said.

(China Daily January 7, 2002)