"Deal or no deal, the U.S. Congress' dance with default impressed policymakers and investors in China and Japan with just how vulnerable their own economic revival plans are to the next political tantrum on Capitol Hill".
"The 11th-hour agreement on Wednesday between Congressional Republicans and Democrats to raise the limit on U.S. government borrowing and end a 16-day government shutdown also averted a default on U.S. Treasury bonds that had threatened the global economy and financial system.
But Congress gets another chance to hold U.S. creditworthiness hostage early next year ahead of a new February 7 deadline to approve a debt ceiling increase.
He and other Japanese officials say they have already developed contingency plans that include flooding Japan's banking system with cash to keep markets functioning however panicked investors become. And analysts say China, whose Communist leaders are due to hold a key policy meeting next month, may step up a push for global acceptance of its currency, the yuan or renminbi, as an alternative to the U.S. dollar in international trade".
"They might actually consider accelerating the process," said Vincent Chan, head of equity research at Credit Suisse in Hong Kong. "You strengthen the case of making the renminbi a genuine international currency, because the Americans are unreliable."
"If China allows the yuan to rise sharply, it could be very risky given the possible asset bubbles in the country," said He Yifeng, an economist at Hongyuan Securities in Beijing.
Japan, meanwhile, is trying to end 20 years of deflation and anaemic growth with a blend of policies named for their chief proponent, Prime Minister Shinzo Abe. "Abenomics" relies on reviving domestic consumption and investment in part by weakening the yen, boosting the earnings and stock prices of giant exporters like Toyota Motors Corp and Hitachi Ltd.
A U.S. default would likely prompt investors to buy yen.
"That would undoubtedly pose a headwind against Abenomics, which has much depended on a weak yen and higher share prices buoyed by the feel-good mood it has generated," said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo.
Source: Reuters
