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3 Dec 2014
Abenomics: Currency wars or just stimulus? - BBH
FXStreet (Guatemala) - Analysts at Brown Brothers Harriman explained that some observers are worried about a repeat of the 1997-98 Asian financial crisis.
Key Quotes:
“They argue that crisis was precipitated by the depreciation of the yen. At the time, many Asian countries had dollar liabilities and yen receivables. This mismatch is not nearly as pronounced now”.
“The reason is the rise of China”.
“China is the largest trading partner of most of emerging Asia. Ironically, the close link of the yuan to the US dollar serves to minimize the volatility of the region's currency mismatch”.
“Ambrose Evans-Pritchard, the International business editor at The Telegraph recognizes that the launch the BOJ's aggressive monetary policy experiment did not trigger a currency war, despite many claiming otherwise because the yen was significantly over-valued”.
“This is not the case anymore, which is why he is worried”
“Indeed, the OECD's measure of purchasing power parity shows the yen to be now under-valued by 14.5% against the US dollar”.
“It is the most under-valued of the major currencies”.
“On the eve of Abe's election two years ago, the OECD estimated the yen was about 23% over-valued”.
“By the OECD's reckoning, the yen is the most under-valued in nearly 30 years”.
“This may seem to help explain why the launching of QQE in April 2012 did not spark a currency war, but it does shed light on why there has been little or no resistance to the BOJ's latest efforts”.
“Could it be that Japanese exports in volume terms are roughly flat?”
“Could it be that Japanese businesses are not taking advantage of the weak yen to boost market share in foreign markets?”
“The goal is not a weaker currency to boost exports. The goal is to stimulate the economy and arrest deflation”.
“It is not a race to debase, but an effort to provide monetary support for an economy that has reached the zero bound, and one in which fiscal policy is largely exhausted (Japan's debt is over 230% of GDP)”.
“This was one of the concerns that Moody's expressed when it cut Japan's debt rate to A1, which is below the rating agencies assessment of China”.
“Countries have to be free to pursue the monetary policy that is required by its domestic economy without being accused of starting a currency war”.
“Many countries face slow growth and weak price pressures. They could seek to drive their currencies lower”.
“This could be a zero-sum exercise if it results in simply taking the aggregate demand from its trade partners”.
Key Quotes:
“They argue that crisis was precipitated by the depreciation of the yen. At the time, many Asian countries had dollar liabilities and yen receivables. This mismatch is not nearly as pronounced now”.
“The reason is the rise of China”.
“China is the largest trading partner of most of emerging Asia. Ironically, the close link of the yuan to the US dollar serves to minimize the volatility of the region's currency mismatch”.
“Ambrose Evans-Pritchard, the International business editor at The Telegraph recognizes that the launch the BOJ's aggressive monetary policy experiment did not trigger a currency war, despite many claiming otherwise because the yen was significantly over-valued”.
“This is not the case anymore, which is why he is worried”
“Indeed, the OECD's measure of purchasing power parity shows the yen to be now under-valued by 14.5% against the US dollar”.
“It is the most under-valued of the major currencies”.
“On the eve of Abe's election two years ago, the OECD estimated the yen was about 23% over-valued”.
“By the OECD's reckoning, the yen is the most under-valued in nearly 30 years”.
“This may seem to help explain why the launching of QQE in April 2012 did not spark a currency war, but it does shed light on why there has been little or no resistance to the BOJ's latest efforts”.
“Could it be that Japanese exports in volume terms are roughly flat?”
“Could it be that Japanese businesses are not taking advantage of the weak yen to boost market share in foreign markets?”
“The goal is not a weaker currency to boost exports. The goal is to stimulate the economy and arrest deflation”.
“It is not a race to debase, but an effort to provide monetary support for an economy that has reached the zero bound, and one in which fiscal policy is largely exhausted (Japan's debt is over 230% of GDP)”.
“This was one of the concerns that Moody's expressed when it cut Japan's debt rate to A1, which is below the rating agencies assessment of China”.
“Countries have to be free to pursue the monetary policy that is required by its domestic economy without being accused of starting a currency war”.
“Many countries face slow growth and weak price pressures. They could seek to drive their currencies lower”.
“This could be a zero-sum exercise if it results in simply taking the aggregate demand from its trade partners”.