Why Do the World's Top Two Current Account Surplus Countries Face Exchange Rate Dilemmas?

There is an identity in the balance of payments: the current account balance plus the capital and financial account balance equals zero. That is, for a single country, a current account surplus (deficit) equals a capital and financial account deficit (surplus). From the perspective of major global economies, the United States is a typical capital and financial account surplus economy, while China and Japan are the top two countries with current account surpluses worldwide.

However, despite Japan and China maintaining strong external surpluses on the current account for a long time, this advantage has not naturally translated into a sustained appreciation of their local currency exchange rates. Instead, both countries have faced noticeable depreciation pressures at certain stages. This phenomenon indicates that the key to exchange rate movements is not just the size of the surplus, but how the surplus is converted into actual supply and demand in the foreign exchange market.

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