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Japan ups the ante in global currency war

With the Federal Reserve and European Central Bank adopting ultra-loose monetary policies, economies around the world are working hard to keep their own currencies weak to help their exporting businesses. Japan's new Prime Minister, Shinzo Abe, came to power by promising to be more aggressive in weakening the Yen, and chances are that other nations will follow suit as well.

Japan's domestic economy has been weak, so the lower it can keep the yen, the greater its exports can help bolster the overall economy. Mr. Abe has gone so far as to indicate that he believes that Japan should print “unlimited yen“. The goal is to raise the nation's inflation target to 2%, up from its current 1% target rate.

While his changes have yet to kick in, the mere anticipation of what is to come is already working in Japan's favor, with the yen having dropped by 7% versus the U.S. dollar since his mid-November election.

Japan's export business is vital for the nation, especially for the auto industry. Toyota (TM) and Honda (HMC) will both be major beneficiaries of a lower yen, as their products become more affordable to foreign customers, and helps the company get a quick boost in their bottom line profit.

While the move is likely to be viewed harshly by the U.S. government, there is little the U.S. can say on the issue since we have been doing the exact same thing over the past few years.

We are witnessing a global currency war taking place. As long as the Federal Reserve keeps interest rates at the current level (which is expected to last at least through the middle of 2014), we are going to hear reports of more and more nations taking similar steps.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.