currency war

[Javelin]

Yes there is a currency war but its the other way around. The US is trying to weaken the dollar especially vs. the Asian currencies. Japan is doing everything it can to fight the appreciation of the Yen and everyone is watching to see what China will do. With an election to fight and a lousy job market there is already a lot of easy scapegoating and China is a convenient target.

Both the Chinese Yuan and the Japanese Yen are probably undervalued and there is no doubt that the dollar is still overvalued so this correction is healthy. I think the risks are that the dollar correction which has been smooth so far turns into a dollar crash leading to a flight of capital out of US assets (remember the US still has a massive current account deficit that needs to be financed by external money).