Japan pushes world closer to currency wars

Central banks consider simultaneous new policies of monetary stimulus

The prospect of a global "currency war" between the world's major economies edged closer as the new Japanese Finance Minister, Taro Aso, pledged to prevent speculators driving up the value of the yen and reiterated Tokyo's plans to alter the Bank of Japan's mandate to deliver reflation.

"If excessive rises or falls in the yen due to speculation cause trouble for a lot of people, intervention would be a powerful tool, so there's no reason why we should not use it," Mr Aso told reporters. His words helped to push the yen down to a two-year low against the dollar.

Mr Aso also said he expects the government to reach an accord with the Bank of Japan next month to double the official inflation target to 2 per cent in order to combat deflation.

Other central bankers have also signalled changes to traditional inflation targeting frameworks. The Canadian central bank chief, Mark Carney, said in a speech in Toronto this month that depressed economies, where interest rates are already at rock bottom, might adopt a nominal GDP target to stimulate growth. Mr Carney will take over as Governor of the Bank of England in July. And the chairman of the Federal Reserve, Ben Bernanke, also committed the US central bank this month to carry on printing money to buy up private sector bonds until the world's largest economy experiences a robust recovery and unemployment falls.

"It's a tug of war at the moment, they're talking currency wars," Dan Harden of Global Reach Partners told CNBC. "The Fed and the Bank of Japan [are] both easing and trying to devalue their currency – at the moment the Japanese are winning."

Other analysts have warned that central banks ratcheting up monetary easing simultaneously could create dangerous asset bubbles. "Massive liquidity injections carried out by the world's major central banks are neither achieving traction in their respective real economies, nor facilitating balance-sheet repair and structural change," said Stephen Roach, a former chairman of Morgan Stanley Asia. "That leaves a huge sum of excess liquidity sloshing around in global asset markets."

Japan is back in recession, having contracted in the second and third quarters of 2012. Analysts are expecting a further contraction in the final three months of the year. Factory output fell by 1.7 per cent in November, data showed yesterday, as demand for exports slumped and manufacturers were penalised by the high value of the yen.

The Japanese central bank has been accused of doing too little to stimulate the economy in the face of deflationary headwinds, despite engaging in four rounds of asset purchases in 2012. The five-year term of the present Bank of Japan governor, Masaaki Shirakawa, comes to an end next April, and the new Prime Minister, Shinzo Abe, has indicated he will appoint someone whose views on reflation are closer to his own. Mr Abe's Liberal Democrats won a landslide election this month, having campaigned on a promise of monetary and fiscal stimulus.

The European Central Bank is the only major monetary authority that has not engaged in quantitative easing since the financial crisis began.

News
Netherlands' goalkeeper Tim Krul fails to make a save from Costa Rica's midfielder Celso Borges during a penalty shoot-out in the quarter-final between Netherlands and Costa Rica during the 2014 FIFA World Cup
newsGoalkeepers suffer from 'gambler’s fallacy' during shoot-outs
News
people
Travel
travel
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
artCultural relations between Sydney and Melbourne soured by row over milk crate art instillation
PROMOTED VIDEO
Arts and Entertainment
Adèle Exarchopoulos and Léa Seydoux play teeneage lovers in the French erotic drama 'Blue Is The Warmest Colour' - The survey found four times as many women admitting to same-sex experiences than 20 years ago
filmBlue Is The Warmest Colour, Bojack Horseman and Hobbit on the way
News
Two giraffes pictured on Garsfontein Road, Centurion, South Africa.
i100
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
News
Kenny Ireland, pictured in 2010.
peopleBenidorm, actor was just 68
News
i100
Arts and Entertainment
arts + ents
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Morrissey pictured in 2013
people
News
people
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features playground gun massacre
News
i100
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Training Programme Manager (Learning and Development)-London

£28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices