Can you have an innocent or unintended currency war? Or, is any policy that causes FX rates to decline another belligerent act in the current ongoing currency war?
The BOJ has just increased its QE program to increase the money supply. The impact will be a lower Yen. We saw the market response immediately. The BOJ wants tin increase domestic inflation which will increase domestic spending. It will also make exports cheaper and imports more expensive. The BOJ is exporting its disinflation to the rest of the world. Is this an act of war with the rest of the world or just a by-product of their efforts to solve domestic problems. No one will outright admit to the exporting of deflation, but that is the result.
The question is whether this action from Japan is good for the rest of the world. Regardless of whether the intention is benign, the impact is downward pressure on prices in the rest of the world. This is the current state of the post Bretton Woods environment of uncoordinated policies.
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