Azernews.Az

By Bloomberg

The big guns of the global currency war may be firing blanks.

A dozen interest rate cuts already this year from Canada to India plus quantitative easing in the euro area have investors declaring the central bankers share the same goals: weaker exchange rates and faster inflation.

The risk is a race to the bottom: a series of competitive devaluations in which nations turn increasingly aggressive in their efforts to seize share in international trade markets. That worry will form the backdrop when Group of 20 finance ministers and central bankers convene next week in Istanbul.

For Julian Jessop, chief global economist at Capital Economics Ltd. in London, the war-mongering is overstated given the experience of Japan, whose yen has declined a third against the dollar since the fourth quarter of 2012.

Japan Inc. has failed to seize the opportunity to boost market share, according to Jessop, a former U.K. Treasury official.

That’s because Japanese exporters have kept prices roughly stable in foreign-currency terms and chosen to benefit instead from the increase in revenues given the volume of sales.

Prices charged by Japanese exporters have declined only slightly, meaning the cost of goods in the international marketplace has actually increased in yen terms by almost a quarter in Jessop’s calculation.

Data for December bear him out. An index for the volume of overseas Japanese shipments climbed only to the highest in two months; in yen terms, it was the highest since October 2008.

Jessop reckons even if central banks were targeting weaker currencies, they would be doomed to fail because competitors would just ramp up stimulus too. And as not all exchange rates can weaken at the same pace, the overall result may be simply that global monetary policy is easier.

“Given the backdrop of weak global growth and low or even negative inflation, this outcome should surely be welcomed,” he said in a Jan. 29 report.