However, Japan and China are at very different stages of economic development and cannot hope for synchronized business cycles in the longer term. In essence, the debate about an Asian currency union boils down to whether it makes sense for the renminbi and yen to merge. Japan's economy is mature. While the economy is now facing structural challenges, in the long term the business cycle will be driven by a small deviation from the sustainable long-term growth rate, as is the case among other mature economies. Monetary policy in mature economies is about fine-tuning domestic demand.
China is at an early stage of economic development with a massive amount of surplus labor.
Such an economy will almost certainly have an investment-driven business cycle. The magnitude of monetary policy adjustment in developing economies can be extremely large compared to what is required for a mature economy. Such a large move in interest rates is difficult to envision in a mature economy. Hence, a single monetary policy is unlikely to meet the needs of both China and Japan at the same time in the long term. November 1998 figure for money supply M2.