Buttonwood: Here we go again

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Every step you take

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Buttonwood

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Governments don’t like strong currencies

THE game of “pass the parcel” is enjoying another round. The yen has fallen by nearly 17% against the dollar since Shinzo Abe became prime minister of Japan at the end of December last year. That may be a boost to the competitiveness of Japanese exports but foreign-exchange markets are a zero-sum game: if one currency weakens, another must strengthen.

America, with its relatively robust economy, can probably cope the best with a stronger currency. But the euro zone is barely emerging from recession, and its currency has risen even more against the yen than the dollar has over the past year. Worse still, the debate at the Federal Reserve during the summer about reducing monetary stimulus caused many emerging-market currencies to decline as capital started to flow back to the developed world in anticipation of higher yields and in response to slower growth in emerging markets. All this has pushed up the trade-weighted value of the euro …

Link to article: www.economist.com/news/finance-and-economics/21589890-governments-dont-strong-currencies-here-we-go-again?fsrc=rss

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