Quantitative Easing and currency war

          Famous Samurai in Battle - Hideyo

A Zero-Sum Game

“Currency war” is ministerial parlance for lowering the value of your nation’s currency so your exports are cheaper and your imports more expensive. That helps domestic growth. It can also drive up inflation—which in the case of deflationary Japan is not such a bad thing. Critics call it a beggar-thy-neighbor policy because trade is a zero-sum game: If one country racks up bigger surpluses, another must run bigger deficits. Competitive devaluation is even blamed by some economists for contributing to the Great Depression.

Quantitative Easing in Japan

The recently-elected Japanese government of Prime Minister Shinzo Abe is trying to end years of chronic deflation and recession by putting the Bank of Japan under pressure to weaken the yen as a way to boost exports. Japan's new government is pressing the Bank of Japan to set a 2% inflation target, double its current objective. Raising inflation makes its currency cheaper, causing the prices on Japanese goods outside the country to fall.

Reactions in Germany

Ms. Merkel echoed in Davos on Thursday the increasing concern in Germany that some countries, notably Japan and the U.S., are using monetary policy as a way to enhance their economic competitiveness.

"I don't want to say that I look toward Japan completely without concern at the moment," she said, adding, "In Germany, we believe that central banks are not there to clean up bad policy decisions and a lack of competitiveness."

The comments were unusually blunt for the typically understated German leader, underscoring concern in Germany that a global currency war would wreak havoc on the world economy jjust as the euro-zone debt crisis appears to have calmed. Germany, the economic motor in Europe, is teetering on the edge of recession.

Source: Wall Street Journal Online

Under intense pressure from Prime Minister Shinzo Abe, the Bank of Japan (BoJ) announced on Tuesday that it would expand its inflation target from 1 to 2 percent “at the earliest possible time” through an open-ended purchase of bonds and other assets—a policy in line with the US Federal Reserve’s “quantitative easing.”

Reactions in UK

The BoJ decision to expand immediately provoked warnings from Japan’s economic rivals that it could trigger a round of competitive devaluations—a “currency war.” Bank of England Governor Mervyn King said that if other countries followed suit, it would be “hard to be optimistic about how easy it will be to manage the resulting tensions.” Michael Meister, a senior member of Germany’s ruling party, warned that the decision could “create a spiral that hurts us all,” and indicated that Berlin might seek G20 support to pressure Japan to change course.

A new diplomatic posture?

One of the factors in Japan’s ability to weather the economic storm has been its large trade surpluses, but the trade balance turned sharply negative in past two years. In 2012, Japan experienced its largest-ever trade deficit. Exports plunged 5.8 percent overall and by 15.8 percent to China amid sharp tensions over disputed islands in the East China Sea. Imports increased, particularly of energy, in the wake of the Fukushima nuclear disaster and the shutdown of nuclear power plants.

Japan’s inherent economic vulnerabilities are being exposed.

« Today, the right-wing Abe government is pursuing a similarly perilous mixture of nationalist economic policies and militarism—and it is not alone. The Obama administration’s resort to unlimited quantitative easing and its aggressive “pivot to Asia” to contain China have encouraged Abe to fire his own shot in the developing international currency wars, as well as to remilitarize Japan. After a decade of US-led neo-colonial wars in the Middle East and an emerging scramble for Africa, the Japanese ruling class is drawing the conclusion that a strong military is necessary to prosecute their economic and strategic interests. »

Read more: http://www.globalresearch.ca/japans-currency-war-militarization-and-monetary-policy/5320566

Consequences for emerging markets

The world is plunging into a currency war, or so say finance ministers in developing economies from Russia to Thailand. This time around it’s not the U.S. that’s taking the heat. Nor is it China. It’s Japan, whose currency is off nearly 13 percent against the dollar from a late-September high. “Japan is weakening the yen, and other countries may follow,” Alexei Ulyukayev, first deputy chairman of Russia’s central bank, warned on Jan. 16. 

Emerging market economies are especially agitated by Japan’s moves. With interest rates near zero in the U.S., investors have piled into Turkey, Thailand, South Korea, and the Philippines in search of better bond returns. That’s driving their currencies up, and a weaker yen amplifies that trend. Thai Finance Minister Kittiratt Na-Ranong says the baht’s exchange rate is “not at a good level.” South Korean Vice Finance Minister Shin Je Yoon says Korea wants the G-20 talks in Moscow this February to focus on the effects of monetary easing in the U.S., Europe, and Japan.