Japan's policy move to weaken yen looks to be igniting currency war

Japan's weak yen policy, aimed at pulling its economy out of deflation and recession, became one of the hottest topics at the recently concluded World Economic Forum in Davos, Switzerland.

Japan's Finance Minister Taro Aso told reporters that its central bank was not pressured to do anything in regards to the currency exchange rate, while European leaders warned Japan against currency manipulation.

“I don't want to say that I look toward Japan completely without concern at the moment,” German Chancellor Angela Merkel reportedly said at the Davos forum, which wrapped up Saturday.

She accused Japan of getting its central bank to “clean up political bad decisions.”

Japan's Aso, in response, said via media that she was “completely off the mark.”

South Korea, which also favors a weak currency to aid exports, did not stand by its usual “wait and see” approach and immediately expressed concerns and doubts over Japan's monetary easing, saying that it may be “effective in the short term, but would be costly in the long run.”

The Bank of Korea (BOK) and the Strategy and Finance Ministry even publicly said they would counter any possibilities of won appreciation through currency intervention, as a strong won severely affects the country's main growth driver — exports.

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