Japanese Prime Minister Shinzo Abe is being praised for his easy money policies and being “victorious” in devaluing the yen against the dollar by twenty percent over the past six months. Despite the risk of fanning the flames of a currency war with trading partners this is seen as sound policy by the the economic elite in government.
The yen has declined more than 20 percent against the dollar in the past six months and its slide was the first tangible effect of Abe’s push to end two decades of stagnation with a potent mix of aggressive monetary easing and fiscal expansion.
Of course exporters are happy about the currency devaluation as it makes their products more affordable to foreigners:
Abe’s bold leadership has seen some early payoff, as the current account surplus hit its highest level in a year in March due to a narrowing trade gap and the boost given to exporters’ overseas income when transferred into yen.
Japanese workers also appear to be cheered for now, with service sector workers’ sentiment outlook index hitting a record high in April, while confidence among manufacturers rose for a fifth straight month.
But of course there are consequences of inflating and devaluing the money. Sure the falling currency will stimulate exports. But this comes at the expense of the purchasing power of everyone else. Japanese workers won’t be so cheery when prices for their everyday goods start rising.
And then there is the escalating currency war which could result from such irresponsible policies:
Yet some market players said a feared currency war among Japan’s trade partners might have just become a reality after Australia and South Korea unexpectedly cut rates this week, citing their strong currencies as one of the reasons to act.
A South Korean finance ministry official said on Friday Seoul was worried about the pace of the yen’s decline and was studying whether new measures were needed to lessen the impact.
It’s the classic problem of competing fiat currencies controlled by central planners – it’s a race to the bottom of who can destroy the value of their currency the fastest. These backwards, wealth destroying policies could never occur with a gold standard in place. Could there possibly be a stronger case for sound money than eliminating such economic buffoonery?