In between courses at last week's World Economic Forum in Davos, representatives of three of the world's biggest export economies - China, South Korea and Germany - warned that the Bank of Japan's decision to raise the country's inflation target and expand its balance sheet could precipitate a wave of interventionist measures in currency markets. Ha Sung-keun, a member of the Bank of Korea's monetary policy committee, likened the developments to a "currency war".
In truth, however, hostilities have been in evidence for some time. The US has repeatedly accused China of artificially suppressing the value of the yuan, while South Korea's currency has devalued more than any of its principal trading rivals since the onset of the global financial crisis. In 2011 Brazil implemented a raft of tax measures designed to curb a surge of inward investment that was propping up the Brazilian Real - in short, they're all at it. Why wouldn't Japan follow suit?
Despite its industrial might, Japan's economic growth continues to be held in check due to unsustainable public debt and the residual effects of the country's banking crisis. The two factors are intertwined due to the fact that much of the Japanese banks' bad loans were simply shifted into government debt - sound familiar?
Although Tokyo's policymakers have probably become accustomed to a moribund domestic economy, alarm bells must have sounded last September when Japan's monthly trade balance reversed into deficit after years in the black, with all but one of Japan's nine export categories demonstrating a year-on-year fall. If Japan was to experience persistent current account shortfalls, it would no longer be able to continue funding its huge national debt - 230 per cent of GDP - primarily through internal financial institutions. The Bank of Japan would have eventually no choice but to aggressively scale up its purchases of Tokyo's government debt, and set the printing presses running.
