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from MacroScope:

Currency peace: G20 gives BOJ a pass for deflation fight

All the talk of currency wars is mostly just that – talk. This week’s meeting of the Group of 20 nations at the International Monetary Fund was living proof. Despite speculation that emerging nations would redouble their criticism of extraordinarily low rates in advanced economies, the G20 ended up largely supporting the Bank of Japan’s new and bold stimulus efforts aimed at combating years of deflation.

Mr. currency wars himself, Brazilian Finance Minister Guido Mantega, told reporters Japan’s monetary drive was understandable given its struggle with falling prices and stagnant wages, even if he called for close monitoring of its potential spillover effects.

Outgoing Bank of Canada Governor Mark Carney said Japan's action is consistent with the G20 communiqué that called for countries to refrain from competitive devaluation. Carney, the head of the G20's Financial Stability Board, takes over the Bank of England in July. His comments echo recent remarks from Fed Vice Chair Janet Yellen.

"It appears with Kuroda's and Aso's comments and the G20's acceptance of their explanation on monetary policy that the path is clear for the BOJ to both continue easing or enact additional easing measures if needed,” said Brian Daingerfield, currency strategist, at RBS Securities in Stamford, Connecticut.

from The Great Debate UK:

Don’t Mention the War!

--Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.--

Modern wars have no clear start and no clear end, leaving politicians free to deny their existence when it suits them and to claim victory even in the face of obvious defeat.

from Global Investing:

The Watanabes are coming

With Shinzo Abe's new government intent on prodding the Bank of Japan into unlimited monetary easing, it is hardly surprising that the yen has slumped to two-year lows against the dollar. This could lead to even more flows into overseas markets from Japanese investors seeking higher-yield homes for their money.

Japanese mom-and-pop investors -- known collectively as Mrs Watanabe -  have for years been canny players of currency and interest rate arbitrage. In recent years they have stepped away from old favourites, New Zealand and Australia, in favour of emerging markets such as Brazil, South Africa and Turkey. (See here  to read Global Investing's take on Mrs Watanabe's foray into Turkey). Flows from Japan stalled somewhat in the wake of the 2010 earthquake but EM-dedicated Japanese investment trusts, known as toshin, remain a mighty force, with estimated assets of over $64 billion.  Analysts at JP Morgan noted back in October that with the U.S. Fed's QE3 in full swing, more Japanese cash had started to flow out.

from Global Investing:

Fed re-ignites currency war (or currency skirmish)

The currency war is back.

Since last week when the Fed started its third round of money-printing (QE3), policymakers in emerging markets have been busily talking down their own currencies or acting to curb their rise. These efforts may gather pace now that Japan has also increased its asset-buying programme, with expectations that the extra liquidity unleashed by developed central banks will eventually find its way into the developing world.

The alarm over rising currencies was reflected in an unusual verbal intervention this week by the Czech central bank, with governor Miroslav Singer hinting at  more policy loosening ahead, possibly with the help of unconventional policy tools. Prague is not generally known for currency interventions -- analysts at Societe Generale point out its last direct interventions were conducted as far back as 2001-2002.  Even verbal intervention is quite rate -- it last resorted to this on a concerted basis in 2009, SoGen notes. Singer's words had a strong impact -- the Czech crown fell almost 1 percent against the euro.

from MacroScope:

Return of the currency wars

Maybe it never went away at all. But if the war was dormant, Brazilian President Dilma Rousseff certainly launched what appeared to be an opening salvo for a new round of battles – rhetorical ones for now.

Rousseff reached for some cataclysmic language to describe the recent appreciation of the real, which Brazil worries will crimp exports and hurt the domestic economy. The culprit, according to Rousseff, is an irresponsible “monetary tsunami” resulting from the ultra-loose monetary policies of rich nations like the United States.

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