Unilaterat actions are not the appropriate way to deal with global imbalances Jean-Claude Juncker, chain of the Eurogroup of euro zone finance ministers, said when asked about Japan
Japan’s recent move to artificially manipulate its currency could start a currency war among manufacturing-based economies of Asia, Europe and North America. On Wednesday, Japanese central bank in a pre-arranged maneuver started a sell off of its holdings in yen, which prompted currency depreciation by three percent against the US dollar.
A lower yen helps Japanese exporters sell more of their products as compared to ones manufactured in the United States and European countries. After Wednesday’s trading the Japanese yen reached as low as 85.52 against the US dollar. The country’s newly elected Prime Minister Naoto Kan, strongly supported the move by Japanese central bank saying, ‘the yen had reached the stage where we could not leave it untouched. So, we intervened.’
Japan’s economy has been in dire straits since over a decade ago when a severe forex crisis hit most Asian countries in 1996. Also the once prolific and innovative Japanese economy has succumbed to its much bigger neighbor China. But, China’s rise should help Japanese and Korean economies over the long run.
That is not necessarily the case case with US or Europeans, because the rise of Asian Dragons would adversely affect western economies rendering them obsolete across the board. The Asian Dragons historically enjoy good relationship with oil and gas producing centers around the world and that guarantees long-term development and cooperation projects. On the other hand the US economy - now an official basket case - is tittering on the brink of bankruptcy with its oil-based printed dollar expected to lose value at any moment.
The United States of America long ago enjoyed a manufacturing-based economy that created many jobs. It used to manufacture variety of household items including pots and pans, refrigerators, clothing, stoves and other labor-intensive consumer goods. However, thanks to Asia’s rise, the global community today more than ever has the opportunity to benefit from reasonably good quality yet affordable products manufactured in China, India, Indonesia, Japan, Korea and other Asian countries.
At this time the US is finding itself acting more and more like a broker and negotiator - a North American version of Mullah Nasruddin - than an actual industrial economy, which explains why the Obama administration is only concentrating on helping the Wall Street instead of the main street. In short, the United States’ strategy is quite simple, it seeks to control global oil-gas flow in order to dictate terms on Asian dragons i.e. tell them exactly what items they should manufacture and how much they are allowed to sell them, of course in US dollar.
Japanese currency manipulation may be the beginning of a nasty trade war among the global powers. Yesterday chair of Eurogroup of euro zone finance ministers, Jean-Claude Juncker, criticized Japan’s currency manipulation saying the unilateral actions are not the appropriate way to deal with global imbalances.