By giving China a place to put its money - and one much closer to home - they’ll have less reason to stop propping up our budget by lending us money. That will cause our interest rates to rise.
It would also be funny if China takes over Japan financially just these few decades after Japan conquered them militarily.
It is a positive step to let the Yuan trade more freely instead of the rigid dollar peg.
The Chinese don't understand the idea of free exchange rates. If they peg to the yen at a different rate from the dollar, they must unpeg the dollar. Otherwise, traders will just shift to the currency with the best rate, and I don't think the Japanese are dumb enough to allow their currency to be manipulated that way.
There would be a lot of long-term benefits to that. One would be a dramatic decline in our trade deficits. At the moment, the dollars sent overseas for our imports are often more valuable to the receiving country to hold as reserves than they are for purchasing stuff in return from us.
There would certainly be short-term pain, too. But, hey that's coming anyway.