Currency Wars – The Push To Devalue The Japanese Yen

japanese_yen

Source: WSJ – Global Currency Tensions Rise

Notable Excerpts:

Japan’s incoming prime minister fired a volley into increasingly tense global currency markets, saying the country must defend itself against attempts by other governments to devalue their currencies by ensuring the yen weakens as well.

Central banks around the world are printing money, supporting their economies and increasing exports. America is the prime example,” said Mr. Abe, referring to the Federal Reserve’s policy of flooding the market with dollars by purchasing massive amounts of Treasury bonds and other assets.

“If it goes on like this, the yen will inevitably strengthen. It’s vital to resist this,” said Mr. Abe

Mr. King, in an interview this month, said, “I do think 2013 could be a challenging year in which we will, in fact, see a number of countries trying to push down their exchange rates. That does lead to concerns.”

It was part of an effort by countries to preserve trade advantage

Since the financial crisis, other countries—including Switzerland, Israel and South Korea—have ramped up their efforts to prevent their own currencies from getting too strong amid worries about their export competitiveness. Policy makers in Australia also are under increasing pressure to fight the rise of the Australian dollar.

Global central bank foreign-exchange reserves expanded to $10.5 trillion by mid-2012 from $6.7 trillion in 2007, according to the International Monetary Fund, a 57% rise in less than five years and a sign of how aggressively world central banks are stockpiling other currencies in an attempt to prevent their own currencies from getting too strong in the wake of the 2008 financial crisis.

The U.S. hasn’t explicitly sought a weaker dollar. But the effect of its policies has been to suppress its value. Most notably, the Federal Reserve’s quantitative-easing programs—in which the central bank prints dollars to purchase government bonds—have the side effect of holding down the international value of the currency by increasing its supply in global markets.

Low-interest-rate policies and quantitative-easing strategies like the Fed’s are one way to suppress the value of a currency. Another is currency intervention—in which a central bank sells its own currency and buys another.

…he is ramping up pressure on the Bank of Japan for aggressive steps including “unlimited easing” to whip the country’s chronic deflation and keep the yen’s strength in check.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s