It seems like we are entering a new regime of international financial diplomacy -- one where policy makers are compelled to test likely policy interventions by stating them in the negative and watching for market reactions. My favorite examples of the last 2 weeks -- courtesy of the US and Japan are below!
Get your decoders ready for next week's G20 meetings. Or maybe the (relatively straight speaking) German and Brazilian contingents will translate for us!
Exhibit 1 below is the Governor of the Bank of Japan:
Via the FT, Governor Masaaki Shirakawa said the central bank was ready to expand its own 5 trillion yen (US$62-billion) asset buying plan announced only a month ago if the economy worsens. Mr. Shirakawa stressed “I do not see Japan and the United States as in a monetary easing competition"
Governor Shirakawa's comments come while Japanese private industry fighting to prevent further appreciation of the yen against the dollar (~20% YTD). The BOJ (like the US Fed) has already brought interest rates to zero and has few tools other than monetary easing to depreciate the yen. Thursday's 5 trillion yen was the start of the US/Japan easing competition. If the yen appreciates further, or talk of QE3 gets going watch for the monetary easing competition to begin in earnest!
Exhibit 2 is the US Treasury:
The USD has fallen 3-5% against most currencies since Secretary Geithner's comments on Oct 24 -- "It is the policy of the US to support a strong dollar -- most significantly after the Federal Reserve's QE2 announcement this week. Is this just a new good cop-bad cop routine between the Fed and the Treasury? Or the sign of real policy differences?
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