Econ Forum:Currency War

TGregg · Oct 1, 2003

Japan and the USA seem to be embroiled in a Currency War. This sort of thing is brand new to me, and I'd like to understand it better. Here's a link to what I refer:

http://story.news.yahoo.com/news?tm...749&e=1&u=/nm/20031002/bs_nm/markets_forex_dc

The really simple concepts are clear, if Yen(s?) cost more dollars, then Japanese exports to the USA rise in price, and USA imports drop, and that theoretically hurts Japan's economy but helps the USA's. I'm not so sure, but that's not even my main confusion.

My main question is, isn't this sort of thing really expensive, and thus a drag on the economy in question? And, if a Currency Squabble becomes a Major Engagement, isn't that gonna be even worse? And if it does, isn't Japan gonna be on the Big Bonehead side that loses?

Any thoughts would be appreciated.

fan27 · Oct 2, 2003

I certainly would not call it a currency war at this point. It appears that the Japanese are just making sure that the Yen doesn't rise too fast. Since the Japanese government is the largest foreign holder of US Treasuries, I am sure there are plenty of behind the scenes policy coordination going on.

Covertibility · Oct 2, 2003

Quote from TGregg:

Japan and the USA seem to be embroiled in a Currency War. This sort of thing is brand new to me, and I'd like to understand it better. Here's a link to what I refer:

http://story.news.yahoo.com/news?tm...749&e=1&u=/nm/20031002/bs_nm/markets_forex_dc

The really simple concepts are clear, if Yen(s?) cost more dollars, then Japanese exports to the USA rise in price, and USA imports drop, and that theoretically hurts Japan's economy but helps the USA's. I'm not so sure, but that's not even my main confusion.

My main question is, isn't this sort of thing really expensive, and thus a drag on the economy in question? And, if a Currency Squabble becomes a Major Engagement, isn't that gonna be even worse? And if it does, isn't Japan gonna be on the Big Bonehead side that loses?

Any thoughts would be appreciated.

How can you say Japan is going to be the bonehead? If Japan holds a majority of the US debt and if their economy erodes to a condition worse than today, why wouldn't they just unload that debt to put them into a position to come out ahead? There are no rules when it comes to playing the game of leverage.

easyguru · Oct 2, 2003

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_pesek&sid=aDpoTuRnYUKc
A good analysis of what can happen if US pushes for devaluation of Asian currencies.

TGregg · Oct 21, 2003

Quote from Covertibility:

How can you say Japan is going to be the bonehead? If Japan holds a majority of the US debt and if their economy erodes to a condition worse than today, why wouldn't they just unload that debt to put them into a position to come out ahead? There are no rules when it comes to playing the game of leverage.

They're boneheads if they lose, that's all. And the USA is if they lose. I don't know nearly enough about currency wars to come to any sort of expectations of future events, but I suspect the USA would hold the upper hand.

But that's basically just a guess.

John Q. Public · Oct 21, 2003

Quote from Covertibility:

How can you say Japan is going to be the bonehead? If Japan holds a majority of the US debt and if their economy erodes to a condition worse than today, why wouldn't they just unload that debt to put them into a position to come out ahead? There are no rules when it comes to playing the game of leverage.

Good idea!

Now, who are they going to sell it to?

Covertibility · Oct 22, 2003

Quote from John Q. Public:

Good idea!

Now, who are they going to sell it to?

Actually its not a good idea. Japan is an export driven economy. The more it sells to the US, the more the yen will appreciate against the US$. To combat a rising yen and prevent its exports to the US from becoming relatively more expensive, the Japanese will either sell yen and buy dollars in the foreign exchange market or buy US debt.

Jayford · Oct 22, 2003

Quote from TGregg:

Japan and the USA seem to be embroiled in a Currency War. This sort of thing is brand new to me, and I'd like to understand it better. Here's a link to what I refer:

http://story.news.yahoo.com/news?tm...749&e=1&u=/nm/20031002/bs_nm/markets_forex_dc

The really simple concepts are clear, if Yen(s?) cost more dollars, then Japanese exports to the USA rise in price, and USA imports drop, and that theoretically hurts Japan's economy but helps the USA's. I'm not so sure, but that's not even my main confusion.

My main question is, isn't this sort of thing really expensive, and thus a drag on the economy in question? And, if a Currency Squabble becomes a Major Engagement, isn't that gonna be even worse? And if it does, isn't Japan gonna be on the Big Bonehead side that loses?

Any thoughts would be appreciated.

This has actaually been going on for many years. At least as long as I've been trading (16 years). It goes through cycles of course, depending on growth rates and trade balances. The funny thing is that when the Forex markets decide a rate isn't correct, not all the intervention in the world can make a difference. Governments aren't large enough! Intervention (buying/selling currencies at a specific level) does work short term because traders know when it will happen. If something fundamental changes though (interest rates, inflation, etc), traders will blow the price through intervention levels like they aren't even there. Fun to watch, and funner to trade. Usually happens in the middle of the night US time though.

Jay