Modern Currency Wars: The United States versus Japan

Ronald McKinnon and Zhao Liu
Additional contact information
Zhao Liu: Asian Development Bank Institute

No 437, ADBI Working Papers from Asian Development Bank Institute

Abstract: In 2013, through massive quantitative easing by the Bank of Japan (BOJ), the yen depreciated about 25% against the US dollar, stoking fears of Japan bashing by the US. However, this sharp depreciation simply restored the purchasing power parity of the yen with the dollar. Since 2008, quantitative easing by the BOJ has been similar to that carried out by the US Federal Reserve, the Bank of England, and the European Central Bank. So the BOJ can only be faulted as a currency belligerent if there is further significant yen depreciation. Led by the US, now all mature industrial countries are addicted to near-zero interest liquidity traps in both the short and long terms. Such ultra-low interest rates are causing lasting damage to the countries' financial systems, and to those of emerging markets, which naturally have higher interest rates. But exiting the trap creates a risk of chaos in long-term bond markets and is proving surprisingly difficult.

Keywords: currency wars; liquidity trap; quantitative easing; dollar versus yen; purchasing power parity (search for similar items in EconPapers)
JEL-codes: F31 F32 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2013-10-10
New Economics Papers: this item is included in nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Modern Currency Wars: The United States versus Japan (2013)
Working Paper: Modern Currency Wars: The United States versus Japan (2013)
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