A war, in my mind, may be stretching a bit at this point...... more of a race to the bottom.
A battle over the direction of monetary policy
intensified on Wednesday as Japan denied accusations that it was trying
to revive its economy at the expense of its trading partners.
Referring to the Bank of Japan’s move to ultra-loose monetary policy
and similar action by other central banks, Axel Weber, former Bundesbank
president and now chairman of UBS, warned that the spread of the
approach was “heading into dangerous territory”.
Mr Weber, speaking at the
World Economic Forum in Davos,
said that the current generation was “living at the expense of future
generations” because monetary policy was encouraging people to pull out
all the stops to continue consuming heavily. “We are trying to keep a
speed limit for our economies that is simply unsustainable,” he said.
The debate on whether monetary policy could do more to boost growth
or whether further action would have negative side effects came as
International Monetary Fund forecasts again suggested the world recovery
would be
slower than previously hoped.
Mr Weber’s comments echoed concerns in China and at the central banks
of Germany and the UK that Japan’s move to an ultra-loose policy was a
bid to drive down the value of the yen that could lead to retaliation
from other countries also seeking to boost the pace of recovery through
stronger exports.
China’s official Xinhua news agency said on Tuesday that Japan’s
“decision to crank up money printing presses is dangerous” and might
lead to “
currency wars”.
Sir Mervyn King, Bank of England governor, said on Tuesday that if a
number of countries sought to lower their currencies it would be “hard
to be optimistic about how easy it will be to manage the resulting
tensions”.
Jens Weidmann, the Bundesbank president, meanwhile, had described
Japan’s new government’s pressure
to make the BoJ more proactive as an “alarming infringement” of central
bank independence that could lead to “politicisation of the exchange
rate”.
Japan hit back at Mr Weidmann on Wednesday. Akira Amari, economy minister,
told the Financial Times:
“Germany is the country whose exports have benefited most from the euro
area’s fixed exchange rate system. He’s not in a position to
critwicise.”
Mr Weber’s concerns over monetary policy were supported by Nouriel
Roubini of the Stern School at New York University, who had backed the
initial moves towards unorthodox policies such as quantitative easing in
the financial crisis. “We must care about it,” Prof Roubini told
delegates in Davos.
However, Japan’s position received support in the Alpine resort from
those who see the use of unorthodox monetary policy across the world as
necessary given the extreme weakness of the recovery.
Stanley Fischer, governor of the Bank of Israel, said policy makers
were still in a good position to rein in any inflation or other negative
consequences of the ultra-loose policy. “Central banks retain [the]
capacity to intervene – they can sell a lot of assets and don’t lose the
capacity to affect interest rates.”
Adam Posen, director of the Peterson Institute of International
Economics, said it was absurd to “hold the deep spiritual belief that QE
must end up in inflation”.
Year-to-date, the portfolio has gained 5.8% or 40 basis points more than the S&P 500. Since inception, the portfolio has gained more than 13% or 410 basis points more than S&P 500. 
