Currency Wars Heating Up As Taiwan, Korea And China Fire Warning Shots

Tyler Durden's picture

While the overnight session has been relatively quiet, the overarching theme has been a simple one: currency warfare, as more of the world wakes up to what the BOJ is doing and doesn't like it. The latest entrants in global warfare: Taiwan, whose central bank overnight said it would step in the FX market if needed, then Thailand, whose currency was weakened on market adjustment according to Prasarn, and of course South Korea, where the BOK said that global currency war spreads protectionism. Last but not least was China which brought out the big guns after the PBOC deputy governor Yi Gang "warned on currency wars." To wit: "Quantitative easing for developed economies is generating some uncertainties in financial markets in terms of capital flows,” Yi, who is also head of China’s foreign-exchange regulator, told reporters. “Competitive devaluation is one aspect of it. If everyone is doing super QE, which currency will depreciate?” “A currency war, a series of tit-for-tat competitive devaluations, would trigger trade protection measures that would damage global trade and therefore growth globally,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank. “That would not be good for any country with a stake in the global economy.” Which brings us to the fundamental question - if everyone eases, has anyone eased? And is there such a thing as a free lunch when central banks simply finance global deficits while eating their soaring stock market cake too? The answer, of course, is no, but we will cross that bridge soon enough.

European news overnight was as usual bad. As SocGen reports, Euro area M3 growth slowed sharply in December, with M3 deposits declining by €42bn on the month. This almost certainly reflects a reversal of the flows seen in October when national subscriptions to the paid-in capital of the ESM temporarily boosted overnight deposits. As this capital progressively get re-invested, overnight deposits fell back by €32bn in December. This is an effect that we were expecting to a certain extent, although the timing of the flows was difficult to gauge. As a result annual euro area M3 growth fell back to 3.3% y/y, down from 3.8% in November. Lending growth however remains very muted with loans for house purchase growing by a measly €3bn on the month (up 1.3% y/y) while lending to non-financial corporations dropped by €51bn. That's the biggest ever one month net repayment of M3 lending and takes the annual growth in lending to non-financial corporations down to -2.3%. 

Next Italy, where things at least form a consumer confidence standpoint have never been worse: despite the easing in financial market tensions and the prospects of an election, the underlying weakness of the Italian economy was again underscored by another sharp fall in consumer confidence. This slipped another 1.1 points in January, dropping to 84.6, which is another record low for the series. The sharpest declines were again experienced in the indices for current family budgets and propensity to save which again testifies to the weakness in personal sector real disposable incomes which we estimate probably fell by around 5% y/y in Q4. These latest numbers therefore show no sign of any improvement in momentum heading into the New Year.

The number of new Spanish mortgages rose by just under 300 in November to 31,697. This is only fractionally above October's outturn which surpasses the previous low in housing market activity and left the number of mortgages down 30.5% y/y.

Finally a quick preview of the busy week - it's going to be a week of being bombarded with data and earnings from all angles. This week will see the first reading of US Q4 GDP as well as the first FOMC statement, Payrolls and ISM print of the year. In Europe we will get a handful of confidence indicators in the earlier part of the week but the main highlight will be the Spanish and Italian manufacturing PMIs on Friday. The earnings season continues on in full swing with 122 S&P 500 and 45 Stoxx600 constituents reporting this week.

More from Deutsche Bank

There has been lots of talk over the last few days about 'currency wars' and a couple of things caught our eye over the weekend. Firstly upcoming BoE governor Mark Carney suggested at Davos on Friday that monetary policy was far from "maxed out" and that "for monetary policy, the immediate priority is to ensure (economies) reach escape velocity". He also seemed to hint that there was some flexibility for inflation being above target for a period of time. To be frank the UK has seen inflation above target for most of the last 6 years so nothing new here but one can deduce from this speech that the UK will not be a laggard in monetary policy when the new governor enters his new office just down the road from mine in July. Talking of laggards, the ECB's continued lack of pre-emptive action (only a bazooka in the background) continues to make the Euro the currency of choice. That their balance sheet will start to steadily shrink this week due to the LTRO repayments is also a contributing factor in showing the contrast between the major central banks. Last week the Euro hit an 11, 22, and 19 month high against the Dollar, Yen and Sterling.

There was also a lot of discussion over Japan’s aggressive policies as Davos ended over the weekend. In an interview, the Bank of Korea’s Governor Kim said that the BoJ move was done in a hasty manner and would lead to large movements in the FX market.

Japan’s economy minister Amari defended the actions and told the forum that it was up to the market to determine the FX rate and the BoJ had chosen independently to sign a joint statement with the government to flight deflation and revive growth. IMF’s Lagarde joined the debate by saying that “Japan has made very important decisions. We are very interested in these policies. We would like them to complement it with a mid-term plan on how the debt would be reduced”. Separately, a long-time advisor of PM Abe, Takenaka told the WSJ that the correction in the JPY has just started and it is not fair to say that the JPY has depreciated too much. The possible candidate for the next BoJ Governorship also said that many see 95 yen to a dollar as a desirable rate (currently 91.05).

On that note the JPY devaluation theme has been a major focus for Asian markets accompanying increasing chatter on Korean Won outflows. Indeed the KRW cheapened 1.6% against the Greenback last week to make it the biggest weekly fall since May last year whilst the KOSPI is currently the main laggard in Asia with a -3% YTD performance. As our Korean rates strategist noted, what matters for Korea today is growth and a competitive devaluation of the yen threatens its recovery. This sets up the stage for the next BoK rate cut and as for timing our strategist think the central bank may opt for a “coordinated” rate cut in March, when the new government takes office and announces a fiscal stimulus package. The timing could be brought forward though if the pressure on the won worsens.

The Nikkei has had a fantastic run since the middle of November though after posting its 11th weekly gain last week, which also was the longest weekly streak since 1973. Elsewhere the UST 10-year yield is steady overnight at 1.949% after having spiked by 10bps on Friday.

Previewing the data flow ahead we will kick off with durable goods orders, pending home sales and the Dallas Fed manufacturing survey today. Tuesday will be a quiet data day in the US before we get the first take of US Q4 GDP on Wednesday. The two-day FOMC meeting also concludes on Wednesday but no major policy changes are expected and there also won’t be a Bernanke press conference this time. Personal income and spending numbers are due on Thursday as is the Chicago PMI. All these before we arrive at a blockbuster payrolls and ISM Friday. In Europe we will get Italian consumer confidence numbers today followed by French consumer confidence and Spanish retail sales on Tuesday. Spanish flash GDP for Q4 is out on Wednesday as well as a bunch of Euroland confidence surveys. Germany’s labour market update and inflation numbers are due on Thursday before we get to the closely watched PMIs on Friday.

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Zer0head's picture

Great news just when you thought it was safe

Fannie Adds Bailout For Underwaters Walkaways: Mortgages



(anyone here getting that Soviet era kind of feeling that we're fcked and there ain't nothin uu can do bout it)

GetZeeGold's picture



We're all comrades now.


How bad is it when Pravda has to scold you?

falak pema's picture

According to BI the Chinese Politburo agrees with you ! 

Qiushi: Capitalism Out, Marxism In - Business Insider

Interesting read.

Half_A_Billion_Hollow_Points's picture

Bitcoin again flies past $18.00 US toiletsbanknotes

Ghordius's picture

forgot to OT? ;-) the article is about currency wars - as a meme getting stronger. eventually to be replaced by the next one, "FX Reserves"

All in all i shudder whenever I think how more difficult business would be here in europe without the EUR in the dawn of a possible greater currency war - everybody and his grandmother would be shorting the Club Med currencies vs going long the northern ones, just for example

life for the small and medium businesses that are so strongly interconnected in the eurozone would be pure (currency) hell

redd_green's picture

Nonsense.   It would not be worse than what everyone had to do *before* there was a 'one world european' currency. life for small businesses was a living hell in the 1990's?  Heh, yeah, right.

Ghordius's picture

nonsense yourself. were we on the brink of a currency war in the 1990's? No. But go back in time and you'll find what I'm talking about.

remember that the key dates of the Dollar supremacy are 1946 and 1971

and note I'm talking about the intra-zone trade and industrial cooperation, not small and medium business that had a pure national focus

John Law Lives's picture

"If everyone is doing super QE, which currency will depreciate?”


Speaking of "super QE", Narayana Kocherlakota reportedly wants EVEN STRONGER Fed action:



“Monetary policy is currently not accommodative enough,” Mr. Kocherlakota said, noting that unemployment is too high while the pace of inflation is too low — below the 2 percent annual pace that the Fed considers healthy.

Mr. Kocherlakota said the Fed should announce its intention to keep short-term interest rates near zero until the unemployment rate falls below 5.5 percent, rather than the 6.5 percent threshold the central bank adopted in December.




GetZeeGold's picture



"If everyone is doing super QE, which currency will depreciate?”


The trick is for everyone to do it all at once.......and not talk about it.


Mums the word amigos.....loose lips sink ships.

dcj98gst's picture

They would think its in their collective "interest" to QE with no talk.  Its their individual interest to do the opposite.  So what happens.  Prisioners dillema.  

TruthInSunshine's picture

In the mean tme, it appears Fitch spotted hellfire missile armed drones circling above its HQ building last night/this morning:

GetZeeGold's picture



Damn......that was close.

Lordflin's picture

We will soon have an answer to that question... Physical separating from paper in the pms market.

overmedicatedundersexed's picture

why would germany want it's gold back..unlimited fiat should lead to each countries fiat devalued, who's is devalued last wins or does it..looking at the options the banks of the world have, they are all hoarding gold, it seems somehow gold holds a key to this world wide devalue of fiat, seems too complex for the average investor to or gold fiat or gold hmmm

GetZeeGold's picture



why would germany want it's gold back


Why can't Germany get it's gold back? Fixed it for you.

Ghordius's picture

+1 and yet, there is another answer. we europeans are still barbarians, when it comes to gold. or prostitution. or alcohol

or just a lot of other things that got missed whenever some commentators deptict us as "the socialist, unfree continent"

GetZeeGold's picture



Would everyone please stop calling those guys really pisses them off.


Thank you for your cooperation.

Ghordius's picture

for me that question is easy to answer: fiat for short term and gold for long term (savings)

straight out of the Austrian School theory of Liquidity Preference (short and long term)

overmedicatedundersexed's picture

so ghordius germany is a saver, not a spender, thats for brussel's to do, i am so confused

Ghordius's picture

brussels? they get 1% of each nation's GDP to spend. get real. the US Defence Department alone is a multiple of it

there are probably some obscure US spending programs that you might not even know that spend more than Brussels

this year the Council (i.e. the Heads of the National Governments) will vote on the next seven years budget (currently at €1T)

the EU is one of the most misunderstood entities of this world, particularly in financial blogs

imagine any US Department fixing it's budget for seven years in advance - that thought alone is just hilarious

overmedicatedundersexed's picture

ghordius, great info so that 1 percent you speak of is all they spend on greek spanish italy ect debt now i understand why debt is so valuable they cannot buy but a small sum of it no printing in the eu above tax income how much better run the eu is than all other economies, the eu is debt free, i did not understand thank you

Ghordius's picture

we were talking about spending, weren't we?

just for context, in the year 2012, roughly:

the US collected some 22% of GDP in taxes and spent some 40%

the eurozone nations collected some 40% of GDP in taxes and spent some 41% directly and 1% through the EU

if this does not give you a hint I'm at loss

of course there is the debt part which is a problem, yes, but again think about how much more taxes we collect - it's like comparing two guys that have the same kind of house, mortgage and spendthrift wife, but the one has double the income

overmedicatedundersexed's picture

ghordius thank you, good info ,, but i have one more for you, why did our/your FED have to bail out EU  banks in 08  you know like dexia, seems like your good math well seems suspect i mean somebody is holding lots and lots of debt which i guess you view as assets..

Ghordius's picture

well, because all banks worldwide are rotten. the bigger, the hollower

any sane solution would be towards breaking them up, as starter, and giving them size limits, as second

it rhymes with "anti-trust"

Ghordius's picture

tax collection statistics as percentages of GDP:

Denmark: 47%; Sweden: 45%; Belgium: 43%; Italy: 42%; Norway: 42%; France: 42%; Netherlands: 38%; Germany: 36%; UK: 34%; Spain: 32%

US: 24,8%, versus an OECD average of 33.8%

keep this in mind whenever we talk about sovereign debt - income is important

GetZeeGold's picture



income is important


So is a budget....but we wouldn't know anything about that here in the USA.

Bullwinkle Moose's picture

Do I smell a whiff of inflation in the air?

news printer's picture

Iran use machine to cut off thief’s fingers
As a punishment for Theft , Robbery ...

rsnoble's picture

Powderkeg.  This planet is about to go supernova.  At least that's what it will look like thru telescopes of distant alien civilizations.  They'll probably think it's the birth of a new universe lol.  I hope they wear sunglasses!

orangegeek's picture

The US Dollar is weighted most heavily against the Euro, Yen, Pound and C-Dollar.


Yen, Pound and C-Dollar are tanking.  Euro should follow very soon.  And the US Dollar will rocket upward.


This has been a long time in the waiting and long overdue.

GetZeeGold's picture



That crap is ready to launch to Pluto.

Quinvarius's picture

The fungible grey ambiguous global fiat lump reminds me of an alchemy experiment from the 1500's.  They are so certain the right combination of various worthless and depreciating ingredients can somehow create a thing of value.  LOL.  It is pathetic.

razorthin's picture

The historical sequence: Financial collapse, currency wars, trade wars, world wars.

ziggy59's picture

Get this...Bank of Italy approves €3.9bn loans for controversial bailout of Monte dei Paschi di Siena
The Bank of Italy has approved €3.9bn (£3.3bn) in loans to fund a deeply controversial state bailout of the world’s oldest bank, Monte dei Paschi di Siena.

youngman's picture

Here in Colombia...they have a native hat...a cowboy hat more or less...its a woven hat with two colors...very nice....well some idiot started making and importing them from now the El Presidiente has put a tax on imports...not just the hat mind you...other things to that are imported....the start of a trade war..this is after he raised the minimum wage here every year to make Colombia´s wage uncompetive in the world markets....and he still has 40 % unemployment more or less....

Sudden Debt's picture



MFLTucson's picture

But the American con show plays on as though there is a recovery in the US alone with 50 million on foodtamps!  What a fraud!

earleflorida's picture


parallel lines have been crossed... blood will flow like a 'rainbow'-- the bated rhetoric is boiling, as the gambits ignite simultaneously

Youri Carma's picture

In the 'Currency Wars' the big question is: "If everyone eases, has anyone eased?"

The answer is: Yes, against gold all the currencies have been devaluated.

That's why central bankster have been manipulating gold down mainly last year but also this year will try to keep gold down for window dressing dollar's devaluation.

They can't do that with oil as much so that's why I think higher oil prices are here to stay while world's printing mania is going on as we speak.