Weakening yen ‘could fuel currency war’

<p>A currency war could begin as a result of the weakening of the yen.</p>

The weakening of the yen against the dollar is likely to fuel talk of a currency war.

With the Japanese currency down to a fresh four-and-a-half year low against the dollar of 102.15 yen this morning (May 13th), the Nikkei index has been experiencing strong gains.

But Chris Towner, director of FX advisory services at foreign currency specialists HiFX, stated the break through the psychological 100 barrier could lead to countries becoming increasingly concerned about the impact that a strong currency has on the domestic economy.

Japan has been accused of deliberately weakening the yen against the dollar in order to support its economy.

Mr Towner said: "Japan should capitalise on the fact that their products have become 30 per cent cheaper to reinvent what made them so successful in the 80s and export growth back into their domestic economy."

Speaking to Reuters last week, global head of currency strategy at Brown Brothers Harriman in New York Mark Chandler stated breaking the 100 barrier has "released the animal spirits".

Learn about the Asian markets and CFD trading at City Index

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.