Hedging in Monetary Diplomacy : Japan’s Selective Engagement with RMB Internationalization

This thesis examines why Japan has signed a Bilateral Swap Agreement (BSA) with China in 2018 despite its broader reluctance to support renminbi (RMB) internationalization. The case seems contradictory given Japan’s historical alignment with U.S. led financial governance and its caution towards Chinese led regional initiatives. By utilizing neoclassical realist theory, the thesis argues that Japan’s decision reflects a broader hedging strategy aimed at risk mitigation while preserving strategic autonomy by reducing over reliance on both the U.S. and China. By using process tracing, the thesis has investigated two causal mechanisms: (1) Japan’s growing concern over dependence on U.S. led financial governance, and (2) its parallel engagement with both China and the U.S. to avoid full alignment with either. Empirical evidence is drawn from official documents, policy statements, and expert assessments. Although all findings were not conclusive, the empirical evidence strongly suggests that Japan’s BSA with China fits into a broader pattern of strategic hedging. This thesis contributes to International Political Economy by applying hedging theory into the realm of monetary diplomacy and providing insight into how middle powers respond to financial multipolarity