US Treasury Secretary John Snow has urged China to adopt a more flexible, market-driven currency while applauding the recent upswing in Japan's economy.
Mr Snow was at the end of the Japan leg of an Asian tour that will take him to China for the rest of the week. The trip comes amid ballooning US trade deficits and increased trade tensions with the two Asian export powers.
While in Tokyo, Mr Snow applauded China's step to cut the yuan's link to the US dollar but said more action is needed.
"We are anxious to see the Chinese fulfill the commitment they made to allow market forces to play a larger role in setting their currency's value over time," Mr Snow said.
"They've gotten on the path that allows them to do so and we'd like to see China continue on that path."
In July, China halted its a decade-long practice of pegging the yuan's value to the US dollar, choosing instead to let the yuan to trade in a restricted float against a basket of currencies of its major trading partners. At the same time, China raised the value of the yuan by 2.1 per cent against the dollar.
But since then, the yuan has gained only about 0.3 per cent against the dollar.
American manufacturers contend that the yuan is now undervalued by as much as 40 per cent, making Chinese goods cheaper in the United States and American products more expensive in China.
US manufacturers contend that is a major reason for the huge trade gap between the two nations.
AP