Japan’s Central Bank Puts on a Clinic in Winning the Race to the Bottom

Currency wars are really heating up as the global economy slows and everyone looks to increase their share of a pie that isn’t growing fast enough.  The Bank of Japan appears to be putting on a clinic in currency depreciation thus far.   Of course, Japanese government officials have claimed that they’re not targeting their exchange rate over the course of the last few years.  But we’ve seen a rather epic move in the FX rate.  The move has been so substantial and so unusual that it’s hard to believe that there’s been no intervention.  But one thing is for certain – QE in Japan is having a huge impact on the exchange rate as the Yen has fallen over 25% against the USD since the BOJ first announced their new QE measures in 2013.

While the currency war is an issue for all of the world’s largest economies it’s an even larger problem for other major importers in Asia.  The falling Yen is going to force other Central Banks to take a more aggressive stance of their own.  But one thing’s certain for now – whatever the BOJ is doing seems to be working through the exchange rate.  It hasn’t exactly translated into broad economic gains just yet, but it will be interesting to see how this all plays out.  Japan is not only sparking huge volatility in their stock market (mostly positive so far), but is winning the race to the bottom by such a wide margin that it’s only a matter of time before the losers start to push back.