| NJ5 said: @alephnull: Thanks for your reply. The scenario you listed at 3) seems to be happening, and apparently the analysts' consensus is that the US dollar will weaken in the next few years. Basically we may see a race between countries to devalue their own currencies... So far the USA is looking quite strong in this race, and European countries seem to be following the same measures. |
I think in the long term you are correct, or at least you were up until the begining of month. It was more than aparent that Japan and China had agreed to allow their currency's to appreciate slowly to help the US reduce it's current account deficit and take some of the pressure off of the euro, however a few weeks ago China broke ranks as it's economy has started to teeter. Unfortunately for Japan the collapse of the "carry trade" which had various funds borrowing massive amounts of yen (thanks to deflation their interest rates have hovered near 0 for awhile) which they then put into sound investments such as mortgage back securities in other parts of the world which were at the time yielding a much higher return than anything in financially boring Japan. It is the scale and speed of this collapse which is moving the currency markets so quickly at the moment and thus far seems as if it has caught the BofJ off guard.
However, the faster the yen appreciates, the more likely a massive emergency intervention becomes, consequentially a violent correction in the other direction. If you can find some charts of yen versus the dollar from 2003/2004 you will see what I mean, currecy interventions are blunt instruments at best. No matter how you look at it though, this kind of volatility is not good for anyone.
