Yen decline could spark currency war


Published — Sunday 27 January 2013

Last update 26 January 2013 11:54 pm

| نسخة PDF Print News | A A

KUWAIT CITY: The decline of the yen could spark a currency war in southeast Asia, Badr Al-Saad, the head of Kuwait’s sovereign wealth fund, said in comments aired yesterday.
The Chinese economy will grow between 7.7 percent to 8 percent over the next two years, far better than developed economies, Al-Saad, the managing director of Kuwait Investment Authority (KIA), told pan-Arab network Al-Arabiya at the World Economic Forum in Davos, Switzerland.
“The only fear is the decline of the yen. The decline of the yen could trigger a currency war in the countries of southeast Asia, this is the only fear we have at the moment,” he said.
The Japanese currency has weakened to about 90 per dollar from 80 since November on expectations Prime Minister Shinzo Abe will force the central bank to ease monetary policy to combat deflation.
KIA has been seeking to invest more in China and China’s foreign exchange regulator recently increased the amount which the KIA can invest directly in local securities markets to $ 1 billion.
Al-Saad said that KIA has been investing in private equity funds where the returns are good and is shunning bonds because interest rates are so low.
“We have been investing in private equity funds lately ... the returns are good,” he said in rare public comments about the KIA’s investment strategy. He named Texas Pacific Group and CBC as two of the funds the KIA has been investing in.
He said the fund wanted to invest in upcoming infrastructure projects in Europe and the US.
“We think that these countries need to develop their infrastructure. We think that investments in infrastructure will be big in the next five years,” he said.
The KIA manages two main funds. Its Future Generations Fund invests abroad and had assets under management worth 73.63 billion Kuwaiti dinars at the end of March 2012, according to media reports, or $ 261 billion at the current exchange rate.
The KIA, which does not officially disclose assets under management, also manages a general reserve fund, which acts as the main treasurer for the government and receives all revenues.
Also yesterday, Japan’s economy minister hit back at critics of Tokyo’s new economic policies, saying they did not call into question the independence of its central bank.
Speaking at the World Economic Forum in Davos, Akira Amari said the Bank of Japan had “voluntarily” decided with the government to introduce a new inflation target in a bid to boost the world’s third-largest economy.
The new government in Tokyo, led by Prime Minister Shinzo Abe, has pushed the Bank of Japan (BOJ) to be more aggressive in its actions to battle nearly two decades of deflation and sluggish growth.
The BOJ on Tuesday unveiled a new inflation target of two percent and a massive program of asset purchases to pump money into the economy, sparking accusations that central bank independence had been compromised.
No less an authority than German Chancellor Angela Merkel told Davos on Thursday that she was “not without concern” about Japan’s actions.
“As regards the new proposal, you might say that it might undermine the independence of the BOJ. In the case of Japan so far, there has not been any undertaking to share the inflationary targets with the central bank,” Amari said.
“This time for the first time, we came to an agreement of a two-percent inflation target that is around the international level,” the minister added.
The policy has also led to a steady decline in the value of the yen against other currencies — boosting exports — but other countries have expressed concern that Tokyo is pursuing a beggar-thy-neighbor approach.
Amari declined to comment on the current level of the yen, which has fallen steadily since the new policies were unveiled, saying that it was “for the markets to decide” the exchange rate.
The head of Organization for Economic Cooperation and Development (OECD), Angel Gurria, told the same panel that it was a “fine line” to walk between defending your currency and putting trading partners at a disadvantage.
He noted that countries like Japan — he also mentioned Brazil, South Korea, Mexico, Chile, China and India — were places that attract investors during periods of uncertainty on the financial markets.
This causes the currency to rise, sometimes requiring action to bring it back to a more normal level, Gurria said.
“There is a certain legitimacy in terms of trying to defend yourself from the onslaught,” the OECD chief said.
“The only question is where do you draw the line between what is genuine self-defense and then something that would be a beggar-thy-neighbor policy? This is a thin line and it’s a difficult line to walk,” he added.
Mark Carney, governor of the Bank of Canada, hit back at this interpretation, saying that the group of seven leading industrialized countries had agreed not to intervene to affect the level of their currencies.
“There is an understanding within the G7 that has existed for the benefit of the global economy that there is not unilateral currency intervention,” he insisted.
Christine Lagarde, the head of the International Monetary Fund, was more circumspect, saying the IMF was “very interested by those policies.”
However, she added: “We certainly would like them to be complemented by a medium-term plan that includes how that debt will be reduced going forward.”

What's happening around Saudi Arabia

JEDDAH: A female Saudi student of medicine was stabbed by an unidentified man in a street at Hackensack, New Jersey, recently, triggering a massive hunt for the culprit and his accomplice. Fortunately, none of her internal organs were harmed due to t...
RIYADH: The authorities have halted the production of specific type of cables at a manufacturing plant in the industrial area of Madinah, saying that their use is dangerous from the safety point of view. According to an official from the Ministry of...
JEDDAH: Yemeni Foreign Minister Riad Yassin recently warned that Yemen may be on the brink of social collapse after recent insurgency acts, a local newspaper reported. Yassin said that future Iranian attempts to interfere in the country might involve...
JEDDAH: The Kingdom is expected to receive more than 6 million Umrah pilgrims during the current season and the number is likely to exceed past figures, Haj Minister Bandar Hajjar has said.“All arrangements are in place and the ministry is ready to w...
RIYADH: The Kingdom will host the summit of the six-nation Gulf Cooperation Council (GCC) on Dec. 10 at which the regional leaders will discuss ways and means to fight terrorism besides key regional conflicts and global issues.The 36th GCC summit wil...
JEDDAH: King Abdullah International Humanitarian Foundation (KAIHF) launched a new dialysis center in Makkah as part of the King Abdullah International Foundation for Charity and Humanitarian Works Dialysis Care Project.The launch ceremony was patron...
JEDDAH: Thanks to the backing of Crown Prince Mohammed bin Naif, 13 purpose-built bomb disposal vehicles for use by Special Emergency Forces (SEF) in dealing with explosive materials are now in use. The announcement was made by SEF Commander Brig. Ge...
DAMMAM: Many cities in the Kingdom have experienced catastrophes as a result of heavy rains and floods which resulted in deaths as well as significant damage to both public and private property.In Jeddah, despite billions spent by the state on infras...
RIYADH: A total of 692 fake nationalization cases were detected across the Kingdom in the last Islamic year and reports submitted to the nationalization committees.The committees, which comprise representatives from different government authorities,...
RIYADH: A forum on medical errors, organized by the lawyers’ committee at the Riyadh Chamber of Commerce and Industry, recently urged the health authorities to establish a special court to deal with medical error cases in the Kingdom.The forum cited...
RIYADH: The government has acquired a new fleet of 2,000 modern school buses to replace its old fleet, according to the Ministry of Education.Modern and well-equipped transport were purchased at the beginning of the Islamic year to replace more than...
ABHA: Many Saudis expressed shock and anger at recent videos showing women being subject to harassment by men.While many still believe that harassment is an individual case that hasn’t evolved into a phenomenon, others state the need to draft laws an...
RIYADH: The Kingdom is moving in the right direction as far as combating drug trafficking and related crimes are concerned, a visiting UN official has said here. Gillian Murray, deputy director, Division for Policy Analysis of the United Nations Off...
DAMMAM: Security patrols in Alkhobar ended an agitation by workers demanding salaries and financial dues on Sunday.The workers belonging to different nationalities had assembled inside the premises of the company that employed them seeking salaries a...
JEDDAH: The Ministry of Education, through the Tatweer for Educational Transport Services that supervises school transport, is allowing the parents of school children to use electronic means to inform them about violations committed by school drivers...

Events & Exhibitions

Stay Connected