* The International Monetary Fund, in its latest World Economic Outlook from October, forecast Japan's annual economic output for 2009, in U.S. dollars at market exchange rates, at $5.049 trillion.
* The IMF had an outdated estimate for China of $4.758 trillion. But China's National Bureau of Statistics said Thursday that its GDP in 2009 totaled 33.535 trillion yuan—a final figure that takes into account the 2008 revisions. At the average exchange rate for the year of 6.831 yuan to the dollar, that is equivalent to $4.909 trillion
* Slower-than-expected growth in Japan at the end of the year could still change the outcome —Japan revised down its third-quarter GDP growth figure to a 1.3% annualized pace from the initial reading of a 4.8% expansion. (Final statistics for 2009 for Japan are expected next month)
China has been the world's second-largest economy behind the U.S. since 2001, according to the IMF's figures.
To keep the currency pegged between 6.8 yuan and 6.85 yuan to the dollar, the People's Bank of China must continually buy up dollars, a trend that saw its reserves jump 23% last year to a staggering $2.4 trillion. That, in turn, means it is continually pumping fresh yuan into its banks.
Luckily for the PBOC, it can afford not to worry excessively about the inflationary effect from these operations. That's because, under China's command economy, it essentially controls the banks.
Whereas other central banks must sterilize interventions by issuing bills to suck up the currency, preventing it from escaping into the monetary base, the PBOC can simply tell banks not to lend the excess yuan to clients.
Chinese authorities have decided that hot-money inflows are the lesser of two evils compared with the economic dislocation of an abrupt loss of export competitiveness. He expects only a gradual revaluation, a process that will perpetuate the cycle of speculation. "They are basically choosing jobs over macroeconomic stability," he said.
Eventually, there is only one way off this treadmill: a genuine appreciation in the yuan to a considerably higher level