Japan's lost decade has become the bogeyman for the United States and China. Both countries, at loggerheads over each other's economic policies, have cited the need to avoid a repeat of Japan's great deflationary experience to justify themselves. But while Beijing, is not about to commit Japan's mistakes in the 1980s, it is actually using the Japanese experience to mask its real intention, argues John Mason, a finance professor at Pennsylvania State University. 'It seems as if everything goes back to this Japanese experience these days,' said Mason, a specialist in the politics of international currencies and a former Federal Reserve Bank of Cleveland official. 'But maybe there is another explanation. Maybe this is what China's leaders would like us to think.' It is widely assumed that Beijing is resisting US pressure to allow the yuan to appreciate quickly because it fears a repeat of what happened to Japan after the US and other G7 countries forced it to revaluate the yen in the mid-1980s under the Plaza Accord. The move inflated the Japanese economy and led to the twin bubbles of the property and stock markets, the bursting of which resulted in the so-called lost decade. 'It is not hard to see China's point of view: it is desperate to avoid what it views as the dire fate of Japan after the Plaza Accord,' wrote Martin Wolf of the Financial Times, as a typical example of this view. 'In the absence of currency adjustments, we are seeing a form of monetary warfare: in effect, the US is seeking to inflate China, and China to deflate the US. Both sides are convinced they are right; neither is succeeding; and the rest of the world suffers.' Mason argues the US is right where China wants it to be and that it is Washington, not Beijing, that is being isolated for its stance on global currencies and trade imbalances. China is using the Plaza Accord as an excuse to hide its real intention of weakening the US leadership position, especially vis-?-vis the greenback as the international reserve currency. 'Many advisers in the United States government have been mesmerised by the events that took place in Japan in the 1990s,' Mason said. 'They couch almost every discussion about current international economic conditions in terms of Japan in the 1990s. They are fighting the last war. 'Japan was not trying to take on the United States. China is. That is the difference.' Referring to the Chinese central bank's surprise quarter-percentage-point rise in one-year lending and deposit rates this month, Mason wrote: 'This has been a major surprise to international financial markets. One can assume that this move was done deliberately and intentionally. The Chinese do not make policy decisions unless they are well thought out.' The move followed Washington's failure to convince allies and other emerging economies at an International Monetary Fund meeting early this month to corner China for its alleged manipulation of the yuan. China, therefore, has demonstrated Washington's weakness. 'The result of the IMF meeting?' Mason asked. 'Little to no pressure was put on the Chinese, giving indication that the United States was having no luck in its campaign to bring the Chinese 'into line' on the value of their currency. The United States looked weak.' By allowing the yuan to appreciate just a bit, the Chinese gave others an excuse not to raise the matter at the G20 finance ministers and central bankers' meeting, where the yuan was effectively off the table. At the full G20 summit in Seoul next month, Mason expects China to further fortify its position against the US as it works to shift the focus to the loose monetary policy of the US. Policymakers in many G20 countries have already expressed serious concerns about the loose monetary conditions in the US that are flooding the world with hot money, inflating their assets and currencies, potentially undermining their exporters and generally destabilising their economies. The US Federal Reserve is widely expected to launch a second round of quantitative easing - that is, printing money to buy US government and corporate debts and other assets - thereby further weakening the US dollar. Brazil, Thailand and South Korea have introduced capital controls to prevent the disruptive effects of foreign 'hot money'. Thailand, South Korea, Switzerland, Japan and Taiwan have intervened to moderate record rises in their currencies against the US dollar. In a policy U-turn, even the IMF now says capital controls may be justified sometimes. Going nowhere with a direct assault on the yuan, Washington is now trying an indirect or broader approach by resurrecting an old idea first tabled by John Maynard Keynes at the 1944 Bretton Woods conference that created the post-war economic world order. The idea was to cap trade imbalances between nations by putting a limit on their trade deficits or surpluses. Ironically, it was the Americans who vetoed Keynes' proposal then. Borrowing from the great economist, US Treasury Secretary Tim Geithner says G20 nations should cap their current accounts within a percentage limit of national output, a tactic clearly aimed at China's massive trade surpluses. That would limit trade and current-account deficits or surpluses that G20 economies could sustain over time and ease dislocations and imbalances in world trade. By broadening the conversation about the yuan and trade imbalances, Washington hoped to move past the impasse over the yuan with Beijing. But Geithner's plan received only token recognition at the G20 meeting this month. It was export-led countries such as Japan, India and Germany that spearheaded the opposition, while China, surprisingly, appeared more receptive. In the end, the finance ministers and central bankers agreed on the need for guidelines to reducing trade imbalances, but set no specific targets; nor did they say how they could be monitored or enforced. Instead, the G20 communiqu? issued a direct warning to the US that loose monetary policy is pushing capital flows into emerging markets and increasing their volatility. US President Barack Obama is reportedly trying to line up more world leaders to support the US position on the yuan again. One option is to push for specific targets and an enforcement mechanism for the proposal to cap current-account deficits or surpluses at the upcoming Seoul summit. There are reports Beijing may accept a cap on current account surpluses at about 4 per cent of gross domestic product, a small concession it can well afford. Instead of a stalemate, Mason believes the US is giving China what it wants. As historians Niall Ferguson and Paul Kennedy have argued, no hegemonic power has ever maintained its dominant position by weakening its currency. Americans nowadays do not even pretend they are interested in a strong dollar. 'The Chinese will strengthen the position of their government within the G20,' he said. 'It will also strengthen the role of other Asian nations as well as other BRIC nations [Brazil, Russia, India, and China] in negotiations concerning the future of the dollar as a reserve currency. 'China is playing a game of chess. It is trying to reposition itself to be in a relatively greater position of power. It is trying to reduce the relative strength of the US in the world and build up its own place. 'The president and the US government, in their myopia, are doing all they can to help China achieve its goal.'