Currency Wars Evolve With Goal of Avoiding Deflation
Currency wars are back, though this time the goal is to steal inflation, not growth.
Brazil Finance Minister Guido Mantega popularized the term “currency war” in 2010 to describe policies employed at the time by major central banks to boost the competitiveness of their economies through weaker currencies.
Weak price growth is stifling economies from the euro region to Israel and Japan. Eight of the 10 currencies with the biggest forecasted declines through 2015 are from nations that are either in deflation or pursuing policies that weaken their exchange rates, data compiled by Bloomberg show.
Bank of Japan Governor Haruhiko Kuroda said last month he’d welcome a lower exchange rate to help meet his inflation target and may extend the nation’s unprecedented stimulus program to achieve that.
The euro is also expected to be among the 10 biggest losers, with strategists seeing a 5.6 percent drop. The yen traded at 106.88 per dollar 7:23 a.m. in London, while the euro bought $1.2733.
Disinflationary pressures in the euro area are starting to spread to its neighbors and biggest trading partners. The currencies of Switzerland, Hungary, Denmark, the Czech Republic and Sweden are forecast to fall from 4 percent to more than 6 percent by the end of next year, estimates compiled by Bloomberg show, partly due to policy makers’ actions to stoke prices.
Source: bloomberg- Currency Wars Evolve With Goal of Avoiding Deflation
