Monetary Policies
FX
to reverse. Te underlying flow picture has been deteriorating and aſter 20+ years of deflation Japan is the most desperate and also the one who is most difficult to blame for a weakening currency (see last G20). In the end USDJPY at 95 (Chart 2) and EURJPY at 125 cannot be seen as historically high from a long term point of view.
Aggressive believe
monetary that boost the easing expanding world the
supporters money
supply is a win-win strategy which will
economy
consequences of ongoing monetary easing are likely to be felt in pockets of the global economy that are already operating at or above capacity (parts of the EM world for example) or asset markets where valuations are already rich (housing markets in some small open G10 economies for example). To the extent that the renewed bout of monetary easing in the G4 provides unwarranted stimulus in these places, this does present genuine and tricky challenges for local policymakers. To think in terms of “currency wars” is, by the way, not going to be of much help to them in framing those responses.
Investment Conclusions
Tis begs the question: Since not all currencies can simultaneously
Chart 2 - Last 35 years of USDJPY FX TRADER MAGAZINE April - June 2013 51
depreciate in value, which ones are likely to appreciate and which ones will most likely depreciate?
Among the major currencies the weakest link has recently been the Japanese yen. Tis trend is unlikely
At the other extreme I see the U.S. dollar. USD is a very ‘political’ currency, partly because it is the world’s primary reserve currency and partly because so many other currencies around the world are linked to it, whether directly or indirectly. Given all the economic problems facing Japan and countries all over Europe, a substantial depreciation in the value of the greenback would be completely unacceptable now that US looks in a relative better shape than peers.
Its deleveraging strategy is looking successful: total debt/GDP ratio is now back around 270%, marginally lower than Europe’s (300%) - but with much better dynamics - and significantly better than UK’s and Japan’s (500%
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