The Surprising Upside to Japan's 'Currency War'

The world is plunging into a currency war, or so say finance ministers in developing economies from Russia to Thailand. This time around it’s not the U.S. that’s taking the heat. Nor is it China. It’s Japan, whose currency is off nearly 13 percent against the dollar from a late-September high. “Japan is weakening the yen, and other countries may follow,” Alexei Ulyukayev, first deputy chairman of Russia’s central bank, warned on Jan. 16. On Jan. 22, the Bank of Japan set a new 2 percent annual inflation target and pledged to expand its purchases of bonds and other assets next year to reach its goal. Both moves are likely to weaken the yen further in the long run, although the currency gained short-term strength because the BOJ won’t expand bond-buying as soon as traders expected. Nevertheless, other governments are more alarmed than before. A spokesman for German Chancellor Angela Merkel’s party said on Jan. 22 that Japan’s actions risked retaliation by other Group of 20 nations.