Last week, by a wide margin, the House of Representatives passed a bill that would empower the Commerce Department to impose duties on Chinese binary options imports to punish China for manipulating the value of its yuan currency. Whether this was just a move to pressure China into giving ground on the dispute, or if the Congress will aggressively push the decisionbar bill into law remains to be seen. The Senate will not vote on the bill until after the mid-term elections.
Meanwhile, the EU is complaining because the yuan hasn’t appreciated as much as hoped since the peg was lifted in June, while the euro has rallied against major currencies, hurting EU exporters. The EU, too, has a major trade shortage with China and will likely also up the pressure on China to let the yuan appreciate faster. China thus far hasn’t blinked, continuing to maintain that major currencies should keep their exchange rates relatively stable.
Another country that has butt heads with China of late, Japan, is working hard to reduce the value of the yen (which last month reached a 15-year high vs. the greenback) and increase liquidity to spark its economy. Beyond the steps taken that we have discussed in this space previously, today the Bank of Japan has cut its benchmark overnight interest rate to virtually nothing, a range of 0 to 0.1 percent. Like in the U.S., the rock-bottom interest rate will remain in place indefinitely. Additionally, it will set up a $60 billion fund to purchase government bonds, and other assets—quantitative easing, a move the EU and the U.S. are also considering making. If these most recently moves don’t make enough of an impact on the yen and the economy, the Bank of Japan stands ready to undertake additional easing, according to the bank governor.
A full-blown trade war is in no one’s best interest. Still, as the Brazilian finance minister in public admitted last week, an anyoption “international currency war” is underway, with countries seeking to lower their currencies’ exchange rates as a way of gaining international trade competitiveness and helping their economies.
