'We are on the threshold of 'currency wars''

In an effort to keep domestic currencies artificially low and competitive in global markets the world economies can end up with another wave of currency wars, warns the First Deputy Head of the Central Bank of Russia Aleksey Ulyukaev.

“We are now on the threshold of a very serious, I think, confrontational action, which is called, maybe excessively emotionally, “currency wars,” Ulyukaev said on Wednesday.Japan is showing an aggressive monetary policy expansion, with the yen having lost 11% since December when Abe’s Liberal Democratic Party won the general election. Lowering the yen’s value is good for the Japanese economy, as it allows domestic companies to receive bigger export revenues, but it hits developing economies, warns Anna Bodrova of Investcafe.In December 2012, the Bank of Japan raised the limit for the asset purchase program by 10tn yen ($120bn) to 101tn yen ($1,210bn). The stimulus measures in the country are aimed at driving Japan out of deflation and achieve 2% inflation. The Japanese economy is marred by over 20 years of negative growth and deflation.Such an artificial currency downgrade is a way “to a separation, a split into separate zones of influence, up to a very sharp competition, up to the world currency wars, which is definitely counterproductive,” Ulyukaev said.“That’s really the case,” Bodrova agrees. “…it’ll be enough to look at the stance of the US, Europe or Japan on the issue. The euro, for example, added more than 8% in half a year, which isn’t at all good for the region’s economic recovery…” she added.Last year the Japanese yen was down by the average of 14%, Bodrova said. “All these movements lead to imbalances in the world currency system, and this has the chance of starting a new round of so-called currency wars,” the Investcafe analyst commented.