Japan took the markets by surprise Wednesday with its first currency intervention since 2004. Dumping yen on the market and buying dollars, officials forced the Japanese currency down "in a bid to protect [Japan's] export-led economy," reports The New York Times' Hiroko Tabuchi. The yen had recently hit a 15-year high.Economists and bloggers are quickly parsing how this move might effect trade, currency markets, and other economies in coming months. Will it set off a wave of much-dreaded "beggar-thy-neighbor" policies as nations attempt to jumpstart their own recoveries?
- Why This Shook Things Up "What's interesting," remarks Business Insider's Joe Weisenthal,
"is the way it was done, namely, with no telegraphing at all. ... The
BoJ had fully convinced markets that it basically was content to sit on
its hands and do nothing." On the other hand, he points out that,
despite the "brutal and ugly" results if you're going by graphs, "this
is how intervention works best--out of nowhere, catching markets by
surprise." He compares it to strategy for barroom brawls.
- Expect More Weisenthal's colleague Vincent Fernando, looking at Morgan Stanley analysis, notes that we could be "in a for huge yen crash," as "a quick glance at history shows ... Japan has tended to intervene multiple times in succession."
- Will It Actually Work? wonders Gwen Robinson at FT Alphaville. "Some well-informed strategists maintain their view that the current intervention will come to nought and the yen will resume its upward path."
- A Bad Idea for Japan and the World Yes, says Time's Michael Schuman, Japan needs a weak yen for its export-based economy, but a far better thing for Japan would be to move away from this overdependence on exports. Meanwhile, this move sends a certain message to other countries:
We want to export to you, not vice versa, for the good of our own recovery, not yours. One of the potential problems emerging from the Great Recession is that everybody wants to export their way to recovery, the U.S. included. ... Will other countries take Japan's lead, creating a dangerous round of competitive currency devaluations? Maybe not. But as long as policymakers around the world expect other consumers to drive their recoveries at home, the risk will remain that the global economy could sink into an era of beggar-thy-neighbor policies that end up hurting everyone.
- Can't Blame Japan, but U.S. Needs to Get Wise "I have a hard time faulting the Japanese," writes economist Mark Thoma. "They are facing a serious deflation problem, and pumping Yen into the system is an appropriate response." His concern is that there's almost "no motivation" for other countries' central banks to prop up the dollar "to support mercantilist objectives," and "no motivation among US policymakers" to do anything about it except "[fall] back on" trade barriers:
The absolute inability of US policymakers to seriously address a global financial architecture where a rule of the game is "when in doubt, buy Dollars" will ultimately have serious consequences via disruptive adjustment when the system can no longer be maintained, via either external or internal forces.