Tags: WSJ | Japan | ceiling | yen

WSJ: Japan Should Put Ceiling on Yen

Sunday, 07 Apr 2013 11:11 AM

By Dan Weil

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Instead of pursuing an inflationary policy of a weaker yen through its new quantitative easing, Japan should establish a ceiling for the yen, according to a Wall Street Journal editorial.

The Bank of Japan announced Thursday its plan to double the monetary base within two years and push inflation up to 2 percent quickly.

“The new quantitative easing will have a negative effect on one group: Japan's neighbors,” the editorial states. “With demand for credit low in Japan, some portion of this liquidity will spill overseas.”

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That will help strengthen the neighboring countries’ currencies while weakening the yen, thereby damaging the neighbors’ exports.

“One way to limit the damage would be to take economist David Malpass' suggestion that Japan set a ceiling on the value of the yen against the dollar, much as Switzerland has done with the Swiss franc against the euro,” The Journal says.

“So instead of lifting inflationary expectations, the BOJ would simply guarantee that the yen
would hold its value against the dollar.”

That would eliminate the threat of further deflation in Japan and at the same time avoid
destabilizing neighboring economies, according to the editorial.

The BOJ’s new easing announcement has put a serious dent on the yen. The dollar hit 97.19 yen earlier Friday, its highest point since August 2009.

“Investors' mindset in trading dollar-yen is to buy it on dips," Brian Dangerfield, currency strategist, at RBS Securities in Stamford, Conn., tells Reuters. "We know that dollar-yen will continue to strengthen given what's going on in Japan.”

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