Newport Beach, CA -- (SBWIRE) -- 02/21/2013 -- Jens Weidmann of the German central bank – the Bundsbank – warned of an impending currency war after Japan’s central bank agreed to unlimited buying of Japanese government debt. I (Jason Galanis) have written recently about this circuitous argument when the hyperbole of the day was about central banking independence. I remain unpersuaded by the latest rhetoric of the German central bank.
Germany more than anybody has been blessed by the “curse” of the Euro. Keeping their currency to levels where things are still affordable overseas. One cannot imagine the price of an independent Deutche Mark outside the euro at the moment and it is almost certain this would decimate German exporters. At the same time, countries like Greece and Italy remain strangled by the currency, unable to devalue a currency, compounded by uncompetitive labor markets and business environments.
Both Japan and Germany have a special status as net exporter nations, in part due to their advanced technology and individual cultural disciplines. As rich world countries that remain net exporters, they have a status that many nations – especially the United States and Britain – look at with envy. Typically an exporter in these times often means being blessed with natural resources under the ground and a growing market to export them, however, Japan and Germany are net exporters in so many other sectors as well.
Given the disparate effects of the single currency and the apparent beneficial effects for Germany as an exporter, it is entirely hypocritical for the Germans to suggest what the Japanese are currently doing is tantamount to a currency war. The Japanese have been mired in a deflationary period since the end of their 80’s market bull run. They were the first country to utilize Quantitative Easing when it was seen as an esoteric perhaps blunt monetary instrument. Notwithstading that the United States is on its third wave with QEIII and Mario Dhragi of the European Central bank has all but guaranteed bailouts, the Germans balk at the Japanese policies.
In all fairness to Weidmann, the Germans have essentially bifurcated their opinions, allowing Angela Merkel to tacitly back Dhragi at the European Central Bank while Weidmann holds the more hawkish line at home. Politically this is the only thing feasible to do in Germany at the moment. You are certainly not going to convince the German public they should be happy that peripheral countries are holding down their currency. Rather, it is easier emotionally to be supercilious about wasteful southern neighbors.
But the question here is really about Japan. The Japanese currency policy is an attempt to kick start an economy whose stock market’s last high was in the 1980’s; ridiculously over valued though it may have been. For years the world looked at Japan as this bizarre economy on life support with their Quantitative Easing; now Quantitative Easing is the new normal. And from that perspective nobody knows more than Japan the quagmire governments can get stuck in when utilizing these tools without an end game. Shinzo Abe is finally trying to restore Japan to a state of growth that brings back its golden days.
Whether he succeeds or not will be seen in the future. Japan has always had a different economy due to cultural considerations; the reaction to the scandal at Olympus being tell tale of that. But the Germans, too, have their own peculiarities, influenced in part by historical battles with inflation that shape their mindset. The irony is two countries that are first world net exporters could bicker at each other over keeping their currencies down is humorous to me. Both should be happy they are still exporters at all.
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