Last week, Japanese Finance Minister Naoto Kan pointedly told reporters that if any of the delegates at the Group of Seven meeting next month in Iqaluit, Canada, brought up the issue of the undervaluation of the yuan, he would 'listen carefully and express opinions if necessary'.
Only a week earlier, he had backed off his call for a weaker yen, but his opinions about relative currency valuations were quite clear.
Ironically, it was not so long ago that Japan had argued stubbornly against foreign complaints about the yen, claiming that currency undervaluation was not the reason for Japan's apparent trading prowess.
Earlier in the week, Canadian Finance Minister Jim Flaherty said the G7 meeting would likely discuss a lack of 'movement' in Asian currencies, with the very clear implication that the yuan would be at the centre of this discussion.
The week before, French President Nicolas Sarkozy blasted what he called the disorderly currency markets. His greatest ire was reserved for the role of the yuan in preventing major currencies from realigning in a non-disruptive way.
What trade pessimists have been predicting for nearly two years seems inexorably to be happening. As unemployment rises around the world, the trade imbalances that were considered over the past decade as economically problematic but not politically controversial are now also being seen as unacceptable. Unless we see a dramatic, and extremely unlikely, reversal of unemployment growth in the next year or two in the world's major economies, the debate will intensify, and hardliners on both sides will increasingly call the shots.
