BOJ, ECB, and Fed jockey for position as a stronger currency might derail fragile recoveries

Bank of Japan Governor Haruhiko Kuroda (L to R), Federal Reserve Chair Woman Janet Yellen and European Central Bank President Mario Draghi at Jackson Hole.

The language and posture of the leading central bankers over the weekend at Jackson Hole shows that tensions over exchange rates are starting to heat up again.

“We’re back in a little bit of that currency-war dynamic,” said Julia Coronado, president and founder of MacroPolicy Perspectives.

Coronado pointed to statements from Bank of Japan governor Haruhiko Kuroda, the only one of the Big 3 central bankers to talk to reporters.

In an interview with Bloomberg, Kuroda said the BOJ was not contemplating scaling back stimulus.

To Coronado, Kuroda was sending a signal that he would welcome a weaker yen.

Although they denied it at the time, the Federal Reserve, the European Central Bank and BOJ all tried in subtle ways to weaken their currencies in the wake of the global financial crisis in 2007. Lower interest rates and asset purchases helped weaken currencies, allowing countries to borrow demand from a neighbor.

Now, with a healthier global economies, central banks are trying to reverse course and dial back the stimulus they provided during the crisis.

Once again, exchange rates are at center stage.

Central banks have to pay attention to exchange rates because if their currencies rocket higher, this could “leak away” their economic recoveries, Coronado said.

http://www.marketwatch.com/story/currency-war-talk-restarts-after-j...