The sudden surge in the value of the yen to a new all-time high against the dollar is a new headache for the Japanese authorities, just at the moment when they did not need one. In the aftermath of the Kobe earthquake in 1995, the yen temporarily surged by almost 20 per cent against the dollar, and a repeat of that episode now would greatly add to deflationary pressures in the economy. Fortunately, however, the Bank of Japan should be in a position to stop this from happening, and other G7 economies will hopefully realise that this is one area where they can really help Japan. There may not be many occasions where co-ordinated foreign exchange intervention is the right thing to do, but this is certainly one of them. Read more
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