The case for stabilizing China's exchange rate against the dollar is strong. Before 2005 when the yuan/dollar rate was credibly fixed, it helped anchor China's domestic price level. But gradual RMB appreciation from July 2005 to July 2008 created a "one-way-bet" that disordered China's financial...

Japan still suffers a deflationary hangover from the great episodic yen appreciations of the 1980s into the mid-1990s. Money wages are still declining, and short-term interest rates remain trapped near zero. After Japan's "lost decade" from 1992 to 2002, however, output has begun to grow...

Todays' American mercantile pressure on China to appreciate the renminbi against the dollar is eerily similar to the American pressure on Japan to appreciate the yen that began over 30 years ago. There are some differences between the two cases, but downward pressure on Chinese interest rates...