Phoney “currency wars” could still have real effects

The Bank of Japan’s adoption of an explicit 2% inflation target, as called for by the new government, has revived talk of “currency wars”, especially as this new target will be backed up by “open-ended” asset purchases. But looking beyond the rhetoric, very little has actually changed in Japan. Elsewhere, an extended period of loose monetary policy in the advanced economies might put upward pressure on some emerging market currencies, prompting intervention and even capital controls. However, this could simply be part of the price that has to be paid for a sustained global recovery.