SCARCELY a week passes now without someone on Capitol Hill or in the White House admonishing China to let the yuan appreciate, while at the same time Japan is allowed to get away with a weak yen that could wreak much more damage upon the global economy than an undervalued yuan.

Yes, China has a much larger trade surplus with the US than does Japan, and that is why hitting on China has become a popular national sport in America nowadays. But the yuan is not the currency of choice for global financial speculation in the way that the yen has become, as a result of Japan's over-loose monetary policy. The focus of attention needs to be shifted.

Why does a country - whose annualised GDP growth in the first quarter of this year exceeded that in the US and in Europe - need rock-bottom interest rates and its currency to be at a 22-year low in trade-weighted terms?

The answer is that it does not need either, and just why Japan is allowed to get away with suppressing interest rates in the way that it has done since its economy recovered five years ago is a question that needs to be raised. Everyone (except for Japanese exporters) is losing from low interest rates.

To get better returns on their savings, ordinary Japanese citizens are being forced to speculate in foreign markets to a degree that ought to have Japanese authorities bellow warnings. Foreign investors are speculating equally massively in yen via the 'carry trades' - borrowing yen and selling them to buy other currencies for financing investments in assets. All this has pushed up global asset prices to unsustainable highs.

And, it has plunged the yen to a 22-year low against other major currencies in trade-weighted terms. Japan's current account surplus, meanwhile, has soared to record levels, bolstered by exports and a national income surplus that is bloated by Japan's surging investments overseas.

At home, the Japanese social security system staggers under a burden of derisory returns on pension and insurance contributions; the banking system is weakened by the inability to price credit according to risk, and tiny interest rates feed a new bubble in real estate and corporate investment.

Yet, the Bank of Japan (BOJ) finds new excuses every month not to raise interest rates at a faster rate than 25 basis points every six months. Government ministers and senior politicians apply blatant political pressure to the central bank not to raise rates while paying lip service to the notion that the BOJ is independent.

Freed from official pressure in Washington to appreciate the Chinese yuan, former US Treasury Secretary John Snow has suggested that Japan's monetary policy requires close scrutiny. But others, like the IMF, the OECD and the Bank for International Settlements continue to pussyfoot around the issue.

If they do not bring pressure to bear - on Japan's political establishment - to raise interest rates and so force the yen to appreciate, there is the risk of a financial crisis of serious dimensions.

Is this article useful to you?