Weak Yen Could Spark Asian Currency Crisis

SocGen’s Edwards:

Friday, 19 Apr 2013 08:01 AM

By Dan Weil

The yen’s plunge could herald bad news for Asia, just as it did prior to the 1997 currency crisis, says Albert Edwards, chief global strategist for Societe Generale.

"It seems investors may have forgotten that yen weakness was one of the immediate causes of the 1997 Asian currency crisis and Asia's subsequent economic collapse," he wrote in a global strategy note obtained by CNBC.

The dollar hit 99.95 yen last week, its highest level in almost four years.

In addition, Edwards thinks the Bank of Japan’s new easing program won’t turn out so well. The Bank of Japan plans to double the monetary base within two years and to push inflation up to 2 percent quickly.

"If the market really believes the Bank of Japan is committed to the 2 percent inflation target (and I certainly do), then Japanese bond yields will quickly attempt a move above 2 percent," he said.

Japan’s 10-year government bond yield stood at 0.59 percent early Thursday.

"If the Japanese government bond yield begins to rise, then an unsustainable debt position becomes even more obviously unsustainable, and the government will be obliged to ramp up its quantitative easing operations to pin yields at low levels," Edwards explained.

And that will just push the yen down more.

But David Bloom, head of currency strategy for HSBC, says experts may be writing off the yen too soon. Quantitative easing in both the United States and Europe hasn’t pulled the dollar and euro down, he wrote in a commentary obtained by Reuters.

The Bank of Japan’s quantitative easing plan merits a 15 percent decline for the yen against the dollar, Bloom estimated. But since October, the yen already has plunged almost 30 percent.

“So the Bank of Japan’s actions have not been as awe-inspiring as some claim, and may very well be priced in,” he said.

http://www.moneynews.com/Markets/yen-Asia-crisis-Japan/2013/04/19/id/500301