Having once dominated currency markets in the 1980s with the Plaza and Louvre accords aimed at managing the dollar’s value, the world’s major industrial nations are again tuning into exchange rates after the yen’s 18 percent tumble in the past three months, according to Bloomberg Correlation-Weighted Indexes. The currency’s slide has brought it to the lowest level since 2010.
With global economic growth still weak, that has raised concern about a 1930s-style round of competitive devaluations, with policy makers from Canada to Germany questioning how central the yen is to Abe’s attempt to end deflation and whether their exporters will be hurt as a result.
“Now we have to see the actual outcome of the G-20,” said Richard Gilhooly, an interest-rate strategist at Toronto- Dominion Bank’s TD Securities unit in New York. “The zero-sum- game nature of devaluations is that Japan’s extra growth is at the expense of those with stronger currencies.”
While Abe and aides have said the yen is only correcting its surge of last year and that their call for more aggressive monetary policy is centered on helping the economy, officials have at times indicated goals for the currency.
Deputy Economy Minister Yasutoshi Nishimura said in a Jan. 24 interview that it wouldn’t be a problem if it reached 100 to the dollar.
The U.S. indicated support for Japan yesterday when Treasury Undersecretary Lael Brainard welcomed its effort to “reinvigorate growth.” Jack Lew, President Barack Obama’s nominee to be Treasury secretary, may be asked to flesh out the U.S. position tomorrow when senators hold a hearing on his confirmation.
Swiss National Bank President Thomas Jordan, who oversees a cap of his own exchange rate against the euro, also defended Japan’s attempt to bolster growth today in denying a “currency war” was underway.