Posted December. 19, 2012 07:23,
Fears over a global currency war are rising due to quantitative easing in the U.S. and Abenomics in Japan. Shinzo Abe, chairman of Japan`s Liberal Democratic Party and slated to be sworn in as his country`s next prime minister Wednesday next week, said, Ill run rotary presses at full capacity to print money. Speaking to the Bank of Japan, which insists on keeping inflation at 1 percent, he added, Ease monetary policies more aggressively and achieve an annual inflation rate of 2 percent. This is part of Abenomics, which can be summarized as indefinite financial easing to jumpstart the Japanese economy. The Abe administration will appoint fiscal officials who support inflation when Bank of Japan Gov. Masaaki Shirakawas term ends in April next year.
The Washington Post said, Abes slogan to restore Japan will be more focused on the economy than military or territorial issues. Though his party claimed an overwhelming victory in Sunday`s general elections, its success was largely due to too many opposing political factions. Since the new ruling party has an approval rating of below 20 percent, it cannot simply focus on military goals, which can be potentially explosive. If the Abe administration eases monetary policy, Japan will have a weak yen. Certain analysts predict that the yen-dollar rate could go from 83 to 90 by the end of next year. This would clash with the U.S. policy of devaluing the dollar via quantitative easing.
A currency war between the U.S. and Japan would pose a big problem. Such a conflict barely creates positive effects for the global economy and is more of a zero-sum game that steals exports from a counterpart. This could lead to a trade war that reduces global transactions. Many scholars consider one of the main causes for World War I and II to be a trade war between developed and developing countries. The problems that a currency war would bring are so well known that both Washington and Tokyo will not easily enter one.
A weak yen will negatively affect Korean exporters. Korea cannot simply manipulate the won to weaken it. The relatively weaker won helps exports but does nothing to vitalize the domestic economy. Korean companies are accustomed to a weak won for too long. A hundred yen was equal to about 300 won in the early 1980s, 500 won in the early 1990s, and 1,000 won in the early 2000s, but the value has ranged between 1,200 and 1,500 won in the 2010s. Exporters need to increase their competitiveness because they have no future if they simply rely on foreign exchange rates.
Editorial Writer Heo Seung-ho (email@example.com)