Weidmann says BoJ policy risks a currency war

Ben Southwood
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PRESSURE Japanese leader Shinzo Abe is putting on the Bank of Japan (BoJ) threatens central bank independence and could risk a currency war, Bundesbank boss Jens Weidmann said yesterday.

Japanese Prime Minister Abe has put heavy pressure on the BoJ to drastically increase its monetary interventions in order to boost inflation to its two per cent target. Hungary’s government have also interfered with policy, forcing five successive rate cuts past unwilling rate-setters at the central bank.

But Weidmann, who leads the fiercely independent Bundesbank, said in a Frankfurt speech that “politicisation of the exchange rate” would erode central bank autonomy and remove one restraint on tit-for-tat monetary conflict. “Alarming violations can be observed in Hungary or Japan, where the new government is interfering massively in the business of the central bank with pressure for a more aggressive monetary policy and threatening an end to central bank autonomy,” he said.

Without independence, countries could be tempted to engage in a currency war – rounds of competitive devaluations, hoping for a quick fix to labour cost issue, Weidmann claimed.