Shengtai Group – Currencies In New Race To The Bottom?
Traders at Asia-based broker dealer, Shengtai Group, believe that moves by the central banks of Switzerland and Japan to weaken their respective currencies could mark the beginning of a new so-called “race to the bottom” for global fiat currencies.
The Bank of Japan sold 1 trillion yen and stepped up its quantitative easing program by 10 trillion yen in order to neutralize its currency’s threat to damage Japan’s export competitiveness.
“Japan’s been doing its best to recover from the disastrous March 11 earthquake and tsunami but has seen an inflow of foreign capital from safety-seeking investors who believe the country to be in better safe-haven shape than Europe and the US,” said one of the “Shengtai Group” traders.
The moves by the BoJ may have been pre-emptive and possibly partly influenced by concerns that the US Federal Reserve will be forced into another round of quantitative easing following a slew of dire economic data that has emerged since June.
The yen rose sharply against other major currencies including the greenback on the announcement but “Shengtai Group” traders are not convinced the effects will prove long-lasting.
“A poor jobs report from the US on Friday could increase expectations of more QE so any benefit to Japan from today’s actions could prove short-lived,” the trader suggested.
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