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Japan joins ugly contest with tsunami of money - Telegraph
Since becoming Prime Minister, Abe has launched a policy shake-up, forcing the central bank to announce that it will raise its inflation target to 2pc, and reach that goal “at the earliest possible date”.
As such, Haruhiko Kuroda, the new governor of the Bank of Japan, has committed to QE on a scale more drastic than anything so far attempted by America.
In September 2010, Guido Mantega, the Brazilian finance minister, pointed a rhetorical finger at the US, accusing the world’s largest economy of conducting a “currency war”.
Suggesting that emerging markets were being unfairly squeezed by a falling dollar, and the boost that gave to American exports, Mantega lit the touch paper on a controversy that won’t go away.
In the aftermath of the credit crunch, some of the world’s most advanced countries have been using QE to bring down the value of their currencies. Such a tactic not only boosts exports, but the QE credits have also been used, via asset swaps, to provide bombed-out banking sectors with yet more implicit subsidies.
By lowering currencies, QE also reduces the value of, for instance, US Treasury bills and UK gilts bought in good faith by investors and which said advanced economies must ultimately repay.
This is “soft default”. You don’t explicitly refuse to pay your creditors, as that involves nasty headlines, messy rescheduling and related legal wrangling. You just make sure the currency you are paying them back in is worth less — which isn’t difficult when QE is used to create money ex nihilo.
This has been happening on an absolutely enormous scale. Since the Anglo-Saxon world embarked on QE in early 2009, the US Federal Reserve has roughly tripled America’s base money supply. In the eurozone, the same measure has doubled over that period.
The UK, which has pursued QE to a greater extent than any other large country, has seen its base money supply increase no less than fourfold.
The Bank of Japan has held out, allowing only a 20pc rise in Japanese base money over the last five years, which goes a long way to explain the yen’s relative strength.
After resisting for a long time, Japan — heavily indebted, and with exports under pressure from upstart competitors — has joined the Western world’s “ugly contest”.
Tokyo is aggressively expanding its base money and, given its determination to lower the yen, isn’t shy to admit it. In a stunning volte face, Japan now plans to double its monetary base from 29pc of GDP at the end of 2012 to 54pc of GDP by the end of 2014.
As such, Haruhiko Kuroda, the new governor of the Bank of Japan, has committed to QE on a scale more drastic than anything so far attempted by America.
In September 2010, Guido Mantega, the Brazilian finance minister, pointed a rhetorical finger at the US, accusing the world’s largest economy of conducting a “currency war”.
Suggesting that emerging markets were being unfairly squeezed by a falling dollar, and the boost that gave to American exports, Mantega lit the touch paper on a controversy that won’t go away.
In the aftermath of the credit crunch, some of the world’s most advanced countries have been using QE to bring down the value of their currencies. Such a tactic not only boosts exports, but the QE credits have also been used, via asset swaps, to provide bombed-out banking sectors with yet more implicit subsidies.
By lowering currencies, QE also reduces the value of, for instance, US Treasury bills and UK gilts bought in good faith by investors and which said advanced economies must ultimately repay.
This is “soft default”. You don’t explicitly refuse to pay your creditors, as that involves nasty headlines, messy rescheduling and related legal wrangling. You just make sure the currency you are paying them back in is worth less — which isn’t difficult when QE is used to create money ex nihilo.
This has been happening on an absolutely enormous scale. Since the Anglo-Saxon world embarked on QE in early 2009, the US Federal Reserve has roughly tripled America’s base money supply. In the eurozone, the same measure has doubled over that period.
The UK, which has pursued QE to a greater extent than any other large country, has seen its base money supply increase no less than fourfold.
The Bank of Japan has held out, allowing only a 20pc rise in Japanese base money over the last five years, which goes a long way to explain the yen’s relative strength.
After resisting for a long time, Japan — heavily indebted, and with exports under pressure from upstart competitors — has joined the Western world’s “ugly contest”.
Tokyo is aggressively expanding its base money and, given its determination to lower the yen, isn’t shy to admit it. In a stunning volte face, Japan now plans to double its monetary base from 29pc of GDP at the end of 2012 to 54pc of GDP by the end of 2014.
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