Yen and pound fall in currency wars; Tokyo stocks roar ahead

02/25/2013 12:26 pm EST


Jim Jubak

Founder and Editor,

And in the two major fronts in the world’s currency wars: The Japanese yen resumes its decline as Prime Minister Shinzo Abe looks close to making a choice for the new head of the Bank of Japan, and the British pound picks up speed in its drop as the government indicates that it’s not backing off from its program of economic austerity even after Moody’s Investors Service downgraded the country’s credit rating to AA from AAA last week.

Japanese stocks staged a monster rally overnight with the Nikkei 225 index climbing 2.43% as news reports pointed to Haruhiko Kuroda as Prime Minister Abe’s choice to run Japan’s central bank. Kuroda is known as a staunch opponent of deflation so he’s likely to be a pedal to the metal proponent of weakening the yen in order to push domestic inflation toward the top of the Bank of Japan’s new inflation target band of 1% to 2%. Kuroda was in charge of the foreign exchange portfolio at the Ministry of Finance from 1999 to 2003 before leaving to head the Asian Development Bank. He’s known as a very able international financial diplomat and the thinking on Tokyo markets is that he will be able to sell Japan’s program to weaken the yen to the country’s international trading partners with relatively less push back. The Nikkei index rose pretty much across the board with 209 of 225 stocks up and only 10 down. The yen fell another 0.14% against the U.S. dollar to 93.29.

Damage to London stocks has been relatively minor this morning in reaction to Moody’s downgrade of the United Kingdom to AA and continued bad news on economic growth. The FTSE 100 Index is actually up slightly with a 0.45% advance. With so many companies listed in London actually focused on the global economy that relatively strong performance for London equities isn’t too surprising. For real damage you have to look to the pound, which is down 0.26% today against the dollar and looks likely to hit a two-and-a-half year low against the U.S. dollar.

That has produced talk that the pound could fall to parity with the euro. (The pound is now at 1.14 euros.) The pound traded at 1.02 euros at the end of 2008. Ladbrokes, the big betting house, is giving 6/4 odds that the pound will fall to parity with the euro in 2013. Ladbrokes is also giving 4/1 odds that the pound will reach parity with the U.S. dollar in 2013. That would require a huge drop since the pound now trades at $1.51. But you know what they say…Where there’s odds, there’s fire.
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