Japanese Finance Minister Taro Aso on Friday warned China against frequent manipulation of yuan rates, saying that Tokyo would face a tough decision on how to respond to any such interventions from Beijing.
Aso urged China to continue shifting its currency market towards a market-oriented system.
In a move that shook global financial markets, China last week devalued the yuan by nearly 2 percent. The action, coming on top of a slew of gloomy data including soft exports and slumping wholesale prices, heightened concern over the strength of the world's second-largest economy.
Aso said Japan welcomes the move if it was part of Beijing's efforts to make its currency system a market-based one. But he warned that Japan was on guard against any attempts by China to manipulate the yuan to give its exports a competitive advantage.
"Japan would face a tough decision on how to respond if China intervenes frequently in the market," he told a news conference after a regular cabinet meeting.
Aso said China's economic slowdown was undoubtedly a big factor behind the declines in global stocks, including a near 2 percent fall for Japan's benchmark Nikkei average on Friday morning.
"We must scrutinize various data to see if China's economy is indeed expanding at a pace of 7 percent," he said.
Japanese policymakers have been keeping a wary eye over Beijing's handling of the turmoil in its markets given China is a major trading partner, and any negative impact on the Asian economic powerhouse is expected to knock Japanese exporters.
Japan's export growth slowed in July on reduced shipments of cars and electronics to Asia in a sign that the global demand outlook may be losing its luster.