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FX Manipulating G-20 "Glass House" Unable To Cast Stone At FX Manipulating-Japan

Tyler Durden's picture





 

Curious why nobody at the G-7 or G-20 had the gall to outright accuse Japan of currency manipulation? Simple: because everyone else in the G-7 and G-20 has been doing precisely what Japan only recently started doing a few months ago. As such, it would be outright "glass house" hypocrisy if there was a formal Japanese condemnation by the group of overlevered nations, which moments ago released its draft communique not naming the island nation outright as was widely expected. Of course, that the G-20 did not accuse Japan of engaging in what everyone clearly knows is currency war, does not mean that everyone else is not doing this. To the contrary: they are, and the lack of a stern rebuke of Japan simply means the currency wars will now intensify, devolving into the same protectionism and trade wars as the first Great Depression was so familiar with, which to borrow a parallel from history again, will end with the kind of war that ultimately ended the first Great Depression.

Nomura's Richard Koo explains:

Currency devaluation the natural response for trade deficit nations

For example, US Treasury secretary Lawrence Summers reacted angrily when Japan’s Ministry of Finance ignored western government warnings in June 1999 and tried to push the yen lower with a ¥3trn intervention from a starting level of 117 to the dollar. When the US reaction was made known, the yen climbed sharply and stopped only when it had approached 100. Today, in contrast, Japan is running a trade deficit vis-à-vis the world and Europe (exports to the US still exceed imports). It is natural for a country running a trade deficit to reduce the deficit by devaluing its currency, and trading partners would have little justification for opposing such a move.

Japan helped avert currency war after global financial crisis

A second reason why the Japan bashers’ arguments are less convincing today—something also noted by Finance Minister Taro Aso—is that Japan has been the only country to observe the agreement reached at the November 2008 G20 emergency meeting in an attempt to prevent a currency war. In contrast, western nations have freely pursued weaker currencies: the UK and the US via massive quantitative easing and Switzerland via direct intervention on the forex market.

A key reason behind Japan’s decision was that if a trade surplus nation behaved in the same way as trade deficit nations, the latter might be prompted to engage in more extreme currency devaluations, sparking a global round of competitive devaluations and a sharp contraction of global trade in a repeat of the 1930s. It was a commendable decision made in consideration of global economic history.

In the 1930s, the US not only participated in the currency wars despite its large trade surplus but also raised import tariffs and engaged in other protectionist actions, thereby contributing to the collapse of the world trade order.

One reason why the global economy managed to avoid a depression after the events of 2008 was that the Aso government and Finance Minister Hirohisa Fujii, a member of the DPJ cabinet that followed, were willing to accept a strong currency despite the resulting pain for Japanese industry because they had learned the lesson from the 1930s that trade surplus nations must not engage in certain actions during a global economic crisis.

Unfortunately, western politicians and media remain largely ignorant of the fact that Japan’s sacrifice prevented a repeat of the global economic tragedy of the 1930s. Japan’s efforts in this regard have been taken for granted, and now some are even claiming the Abe administration has started a currency war.

Mr. Aso, however, was one of the key architects of the G20 agreement four years ago and should be able to respond to western criticism from both the perspective of macro fundamentals (Japan is running a trade deficit) and policy track records (Japan’s tolerance of a strong yen helped prevent a currency war). When asked at a press conference on 28 January whether he was concerned about western criticism of recent yen weakness, he was quick to note Japan’s policy track record in this regard.

 


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Fri, 02/15/2013 - 10:02 | Link to Comment Stoploss
Stoploss's picture

Different this time??

 

LOL!!

Fri, 02/15/2013 - 10:12 | Link to Comment john39
john39's picture

in at least on aspect...  this time the war(s) are already well underway...

Fri, 02/15/2013 - 10:04 | Link to Comment SheepDog-One
SheepDog-One's picture

OPA!

Fri, 02/15/2013 - 10:07 | Link to Comment Buckaroo Banzai
Buckaroo Banzai's picture

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Race...
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To....
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The
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BOTTOM!!!

Fri, 02/15/2013 - 10:13 | Link to Comment Edward Fiatski
Edward Fiatski's picture

Won't a weak Yen really piss off China? Are they even competing in the same industries? Suppose, automotive assembly robots could count as slaves. :S

DROIDS' RIGHTS MOVEMENT! Revolution! Down with slavemasters paying the robots in ever-devaluating YEN!

Fri, 02/15/2013 - 10:18 | Link to Comment Orly
Orly's picture

South Korea would be exceedingly unhappy with them.  The Chinese are more diversified.

:D

Fri, 02/15/2013 - 10:17 | Link to Comment Sudden Debt
Sudden Debt's picture

maybe tomorrows asteroid will break the glass house?

and we might not even know because now they expect all television signals to be lost when it comes.
Did anybody see the reports of the russian meteor, People with burnwound just because of the light, hundreds of houses crumbles because of the chockwave, the russian army that shot dozens of missles onto it at a altitude of 3 miles, missiles and debree falling on houses....
A well organized drill :)

Fri, 02/15/2013 - 10:19 | Link to Comment youngman
youngman's picture

Bernanke´s comment was perfect......unfortunatly I cannot find it again.....

Fri, 02/15/2013 - 10:21 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Article quotes « Nomura's Robert Koo » ... Is it perhaps the great Richard Koo of Nomura, the leading authority on the 'balance sheet recession' now engulfing the Western world?

Or is 'Robert Koo' his long-silent younger brother there?

Fri, 02/15/2013 - 10:25 | Link to Comment LMAO
LMAO's picture

Ahhh, the G-spot-20 caught up in a real Japanese FX bukkake.

Everybody is trying to dump their load on another countries face.

Fri, 02/15/2013 - 10:30 | Link to Comment rwe2late
rwe2late's picture

Such a sorry state of affairs.

Actually some degree of “protectionism” against misnamed “free trade” would be good for most people.

The US built up its economy with protectionist policies until it became an empire. Many nations are suffering with IMF “free-trade” globalism. Their local agricultural base is being ruined, and they are becoming dependent “sweatshops” to supply mindless consumerism. The export-oriented oligarchies enrich themselves but typically ignore the well-being of their domestic population. The petrodollar “free trade” arrangement ultimately helps finance militarism, tyrants, and virulent ideologies. And the whole system is predicated on untrammeled economic expansion and concentration of wealth, regardless of any "non-monetary" costs.

Likely any stagnation or collapse of the global economic order will foment rivalries, rebellions, more global “policing”, and more warfare as those in power attempt to hold onto it. To do so, they will strive to eliminate rivals, and “secure” ever more resources and markets. It will all be deemed “necessary” for so-called vital interests, security, or stability.

Fri, 02/15/2013 - 10:33 | Link to Comment Falconsixone
Falconsixone's picture

Devaluation? What's that? Is that like being worth 100 credits once packaged in to soilent green?

Fri, 02/15/2013 - 10:53 | Link to Comment falak pema
falak pema's picture

Pax Britannica came down in flames last time, a century ago, as it got burned along with its rising Nemesis : Imperial Germany; in two huge destructive hiccups.

Pax Americana could well know similar fate in this age, as its new Nemesis is China and Bric alliance; its Achilles heel is precisely its previous strength : the financialised Greenback. Destruction thru internal implosive momentum inflicted on the petrodollar sustained, greenback dominated, electronic fiat world is now the only logical solution left; in the face of mad relentless print to infinity devaluation and currency war knee jerks amongst the ruling but increasingly divided global Oligarchy class, all bowing today to King reserve currency.

As then, under Metternich's British-Austro Hungarian-Russian tripartite alliance which fed subsequently the common race into nascent industrialisation, in precarious geopolitical equilibrium over nearly a century before it went bust in  1914; as Prussia said "Nein"; the neo-Metternichian Kissinger construct around oil patch today could well come asunder as the debt gets unsustainable and the USD wobbles; like the imperial £ did after Queen Victoria's death, as RM access to burgeoning Bismarckian Nemesis requiring vital Lebensraum was denied by the Franco-Brits and Ruskis.

We could be in a similar mechanism of the West denying commercial Lebensraum to China and consorts in current developping showdown.

When this world comes down along with its surrogates; Japan, Eurozone, UK and Arab Monarchies; an alternative paradigm will be possible. Not until then; this fall looks now written in the wind as the Fiat Achilles heal is now bleeding bad.

This print to infinity would seem to imply total intransigeance on part of current EMpire to protect its own way of life now dependent ever increasingly on other people's riches. The real culprit of current currency war is no other than Kind Dollar since 1971 ; forever singing "our money your problem!"

 

Sun, 02/17/2013 - 14:51 | Link to Comment OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Superb, Falak, love your work

Fri, 02/15/2013 - 11:37 | Link to Comment rwe2late
rwe2late's picture

 

Remember, Japan is still an OCCUPIED nation.

Its “weak yen” policies are necessarily influenced, if not determined by that.

 

There is more to this, the Japanese export oligarchy, and the US “Asian pivot” than meets the eye.

In the 1970s:

… money was flowing into Japan at an unprecedented rate. Prices were beginning to move upwards and new money was flowing into the stock market at an unprecedented rate, causing the Nikkei to rise faster than market fundamentals might dictate.

By the mid-1980s, the Japanese Central Bank decided to slow the economy down by raising interest rates. This action would dampen any inflationary tendencies and prevent a stock market bubble from forming. However, as logical as this solution was, it was to be opposed by the US government and never implemented.

At the time, most of the Japanese money was being invested in US Treasuries, as the Reagan administration was borrowing heavily to fund its military buildup. During Reagan’s presidency, US government debt tripled from one to four trillion dollars, the greatest percentage increase of US debt in history.

The US knew that any rise in Japanese interest rates would slow the flow of Japanese funds to the US. Japanese investors would much prefer to keep their money in Japan if interest rates were high enough.

But during this time, the Reagan administration needed a constant flow of foreign dollars to pay for its military expenditures and when it heard about the plans of the Japanese Central Bank, it did more than register a protest. It threatened Japan with economic sanctions.

If the Japanese went ahead with their interest rate increase, the US threatened to retaliate with import tariffs on Japanese automobiles, electronics, and consumer goods. This threat was real enough to cause the Japanese to cancel their interest rate increase.

As a result, the US military buildup continued and the price of Japanese real estate and stocks, fueled by excessive amounts of liquidity, exploded upwards. Japanese real estate prices increased 70 times over and stock prices increased over 100-fold, with the Nikkei reaching a market top at 38,992 in January 1990.

As with all speculative bubbles, the Nikkei collapsed - and the collapse of the Nikkei in 1990 unleashed deflationary forces not seen since the Great Depression of the 1930s. Prices of stocks and real estate in Japan began a long and steep multi-year descent.

Commercial real estate lost 80% of its value in the next decade and the Nikkei fell from 38,992 in 1990 to 8,237 in 2003.

 

 

 

 

http://www.321gold.com/editorials/schoon/schoon121912.html   

 

Fri, 02/15/2013 - 12:05 | Link to Comment mendigo
mendigo's picture

There have always been wars there will likely continue to be wars.
If there are wars it will not be due to the sheeple and thier p-shooters and coctails. It will be about the some nation acting on behalf of the monied intrests demanding thier rightful claim to something that some other nation or tribe is holding or simply agitating conflicts among the banana republics so that some can benefit from fonancing them and others can swoop in to pick up what remains.
The upside for the commoners is that your children will be able to pay for education if they are willing to kill enough of the electedadversaries.. There needs to be a point system I think I mean killing children should probably not earn the same credits as known terrorists although if they are Muslim I suppose they could be assumed to be futire terrorists. as all good Christians know and espouse they don't really count those turbin wearing kids

Fri, 02/15/2013 - 13:17 | Link to Comment Mi Naem
Mi Naem's picture

I'd love to be the window treatment vendor for the iconic and beautiful glass house at this article's front page summary. 

Payment in Maple Leaf and Krugerrand only, please. 

In advance. 

Fri, 02/15/2013 - 13:59 | Link to Comment Yen Cross
Yen Cross's picture

      Why the hell is CNBS wasting the day on one relatively small company and two feuding geriatric megalomaniacs?

  What a worthless piece of shit sitcom/financial reality show CNBS is. Click...   (sound of remote changing channels)

 

        When G-20 ends it's on like "Donkey Kong" for Japan...

Fri, 02/15/2013 - 13:57 | Link to Comment SmittyinLA
SmittyinLA's picture

I think Japan wins, all of Japans "opponents" are debasing currency and using labor arbitrage (mass cheap labor immigration) except Japan, Japan is producitgn more with less every year, they're investing in "assets" versus immigrants, in the long run there's a huge difference, one yields huge returns one yields huge losses.

Alan Greenspan calls it "flexibility" when you can add ten million "permanent" additions to your economy, others call it a liability.

Importing cheap labor by the tens of millions has serious national and cultural PERMANENT consequences. 

All that awesome growth of the 70s 80s 90s and 2000s was put on Juan's credit card.

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