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Are we facing a new currency war? Add to ...

These are stories Report on Business is following Wednesday, Sept. 19, 2012.

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A new currency war?
The Bank of Japan surprised markets today with a boost to its stimulus measures, following in the footsteps of the U.S. and European central banks over the past few weeks.

Japan’s central bank pumped an extra ¥10-trillion into its asset-buying program, which it extended to the end of next year, citing troubles in other economies and inside its own borders.

The move immediately knocked down the yen, raising the question of whether the world is heading back into a currency war, though it soon gained back ground.

“With concerns about a rising yen continuing to trouble Japanese policy makers and economic activity starting to slow, the Bank of Japan decided once again to try and deal with the problem of their appreciating currency, which is continuing to hurt the country’s exporters,” said senior analyst Michael Hewson of CMC Markets.

“Last week’s Fed action won’t have done the Japanese any favours, strengthening the yen further and the central bank has decided to respond early .. in order to try and mitigate the Fed’s actions, on its own currency as well as attempt to stimulate growth.”

Last week, chairman Ben Bernanke and his colleagues at the Federal Reserve unveiled a new bond-buying program, dubbed QE3 because it marked the third round of quantitative easing. The European Central Bank under chief Mario Draghi moved a week earlier.

The Fed, of course, says its programs are not aimed at weakening the U.S. dollar, though, as senior currency strategist Camilla Sutton of Bank of Nova Scotia noted, the central bank is aware that its policy is “U.S. dollar negative.”

The latest moves by the world’s big central banks – and we’ll see what comes next from the People’s Bank of China – reminds some observers of the where the world stood during the currency cold war of last fall.

"We would suggest markets have almost come full circle from the fall of 2011, when the G4 central banks announced increasingly aggressive monetary policy, unleashing a risk rally and adding fuel to the ‘currency war,'" said Ms. Sutton. "The chances of reliving this are increasing."

Indeed, it threatens a tit-for-tat of sorts.

"The likelihood of a similar pushback by emerging market economies is likely to be easing of their own or capital controls to try and stem the flow of hot money looking for yield," said Mr. Hewson.

A weaker currency helps a country’s exporters by reducing the cost of their goods in foreign markets. And a stronger currency hurts. Just look at Canada’s widening trade deficit of late, and you can see the impact the strong dollar is having.

“They say the definition of madness is repeating the same thing over and over again, expecting a different result,” Mr. Hewson said.

“Japan has had an easy monetary policy for years with no discernible improvement in the country’s economic outlook,” he added.

“The Bank of Japan’s actions were inevitable once the Fed acted last week given the pressure their exporters are under. Even though they have only done an extra ¥10-trillion they do have scope to do much more, given the pledges by Bernanke and Draghi to do unlimited buying.”

At this point, the outcome of the Bank of Japan’s move today is uncertain. Adam Cole of RBC in Europe, for example, believes it will be “largely irrelevant” for the yen.

“Whether the BOJ will squeeze domestic investors out of the yen and into foreign currencies is uncertain but more aggressive monetary easing is  always to be welcomed in deflation-struck Japan,” added Kit Juckes, the chief of foreign exchange at Société Générale.

Housing market cools
Home prices rose just 0.2 per cent in August from July, the smallest increase for the month of August in 12 years, according to the Teranet-National Bank National Composite House Price Index.

Prices declined in three of the three metropolitan housing markets that were surveyed, The Globe and Mail's Tara Perkins reports. In Vancouver they dropped 1.2 per cent, in Victoria 0.7 per cent, and in Quebec City 0.6 per cent.

The house price index was up 4.1 per cent from a year ago.

Canada promises Asia on energy
Canada's Natural Resources Minister  is offering assurances to Asian customers that Canada will move quickly to build liquefied natural gas plants capacity on the west coast to feed their growing demand, The Globe and Mail's Shawn McCarthy reports.

Accompanied by several companies involved in proposed projects in British Columbia, Joe Oliver spoke at an international LNG conference today in Tokyo, where he promoted Canada as a secure source of gas and a welcoming place for Asian investment.

When the choice isn't yours
Despite their best-laid plans, a new poll says more than one-third of retired baby boomers did not choose when they left the work force, The Globe and Mail's Roma Luciw writes.

The poll of Canadians aged 50-plus with financial assets of at least $100,000, released by Royal Bank of Canada today, found 85 per cent of not-yet-retired baby boomers believe they will work until they decide not to. But among those who have actually retired, only 62 per cent had that choice.

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