The Research Of China's Foreign Exchange Reserve From The Comparison Between China And Japan

Foreign exchange reserve is the embodiment of a country's capacity of external payments. It has been closely concerned by international financial institutions and the governments of all countries. Recently, U.S. dollar devaluation and American debt crisis have put the reserve problem to the outlet wave. For two countries-China and Japan, which have the most foreign exchange reserves in the world,it is worth to pay more attention to foreign exchange reserves.In 1993, Japan exceeded Taiwan and Germany to become the world's first-largest foreign exchange reserves country, Japan had always owned the world's leading foreign exchange reserves power before surpassed by China in February,2006. After "The Plaza Agreement" in 1985, Japan's economy was hit seriously by a sharp rise in the yen Japan also encountered the world-renown "lost decade" in the 1990s.To maintain the stability of the exchange rate, the government sold yen and bought dollars to intervene the exchange market. This behavior promoted the economic recovery, but at the same time caused the accumulation of Japan's foreign exchange reserves. Although Japan operated well in the management of foreign exchange reserves, the government realized the risk with U.S. dollar devaluation and American debt crisis. Therefore, following the steps of the EU and other developed countries, Japan has stopped the large-scale foreign exchange intervention to control of reserves quantity and leave the dollars gradually since April 2004.With the high speed development of economy and globalization, especially since joining the WTO in 2001, China's international trade and introduction of foreign capital have got rapid development. Based on the balance of payments surplus, China has owned more than $3 trillion foreign exchange reserves by now, and has become the world's largest. The massive foreign exchange reserves have made China successfully deal with global financial, energy, food crisis, and promoted the international economic status and enabled our country to provide foreign exchange to support surrounding countries to enhance the international influence in Asia and the whole world. However, enormous foreign exchange reserves have brought a huge challenge to our country's macroeconomic stability operation, the healthy development of financial market and the liquidity of management. Nowadays, the size of china's foreign exchange reserves is still arising and has brought about a series of problems, especially the risk of foreign exchange reserve assets shrink dramatically. Therefore, it is necessary for us to understand our own shortcomings and get reference from Japan. Therefore, this article focused on the comparative analysis of two countries, summarizing the experience from contrast in order to understand China's present situation clearly and offer beneficial reference to the problem of our foreign currency reserves.The article adopted the theoretical and empirical analysis, using a lot of data and charts to discuss the subject. Specifically, this text is divided into five parts altogether. The first chapter discussed the background, purpose and meaning of subject, summarized the present research at home and abroad, and illustrated the structure, research methods, innovation and shortage of this paper. The second chapter focused on the basic theories of foreign exchange reserves. The third chapter analyzed the current situation and the reasons for massive foreign exchange reserves between China and Japan. The fourth chapter expounded how to use the foreign exchange reserves and the application effect in two countries. The fifth chapter discussed the problems of China's foreign exchange reserves which need to be concerned and put forward relevant policy proposals based on the experience of Japan and our own reality in order to improve foreign exchange reserves management for China. The sixth chapter summarized the above five chapters so as to comprehend the foreign exchange reserves between China and Japan deeply.The innovative point of this paper is to analyze the situation, reasons and application of the foreign exchange reserves between China and Japan comparatively, and propose some reasonable policies and suggestions at last. In methodology, the article adopted the theoretical and empirical analysis. However, because I am poor in Japanese, I can only get some charts and data from existing researches and related translations of domestic and foreign scholars, unable to obtain first-hand information. In addition, due to my limited academic level, the theoretical analysis of article is not deep enough, therefore, I will constantly improve the research ability and academic level with more serious attitude to make progress in the future.