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Yen, renminbi may weaken further: UBS’s Magnus

In an interview to CNBC-TV18, George Magnus, Economist & Author, Corporate Advisor, UBS spoke about the global markets, central bank actions and their impact on currency movements.

In Japan, he says the government policies don’t seem to be working the way they intended them to and the fiscal stimulus announced by Bank of Japan is likely to put pressure on the central bank to print more money.

On the Asian currency front, he says any fall in the value of Renminbi will be significant not only for Asian but also the world currencies. He thinks Renminbi is likely to depreciate against the US dollar.

Yen too has been depreciating but rupee according to him has been strong amongst the Asian currencies.

Below is the transcript of George Magnus’s interview to CNBC-TV18’s Latha Venkatesh

Q: How do you see things panning out in Japan after that 80 trillion yen announcement from the Bank of Japan? Now there is a fiscal stimulus also that is underway. Do you see the yen at 120/USD in a few months time?

A: My view is that it is going to go even further than that. I think what we have learnt from Japan over the last 48 hours if not say over the last several months is that the governments policy is not working, the policies are not working the way they intended.

I am not sure that everything can be attributed to the rise in the consumption tax but it was an untimely change, it means that there will be even more pressure on the Bank of Japan to continue printing money. If there is an election which is now being speculated, then what we will really have to hope is that the government is capable of delivering the kind of reforms that everybody was so optimistic about a year ago but which ran dry pretty quickly. So all we have got left at the moment is monetary stimulus and perhaps a little bit of fiscal stimulus as well.

Q: What will be the consequences of this Japanese monetary cum fiscal stimulus on other emerging markets? I noticed in your blog a very interesting article saying that it will mean the long march of Renminbi appreciation is over. Can you elaborate on that because that could be direct competition to India if the Renminbi were to depreciate?

A: That is an interesting phenomena because so far the depreciation of the yen say from 75-80 yen to the US dollar to about 115-116 yen/dollar is a big move. But actually the trade weightage values of Asian exchange rates has held pretty stable and the rupee has been very strong. But I don’t think that is going to last if the yen drops another 20 percent which it could do. Under those circumstances there will be some decline in Asian exchange rates.

Interestingly, the Renminbi will be one of the currencies and because it is Chile’s it is very important one. It will be one of the currencies that will depreciate against the US dollar. It is partly for external reasons but also for internal reasons as well because China’s economy and its property market are continuing or will continue to slowdown. So the fall in the value of the Renminbi will be of some significance, not just currencies in Asia but wider world as well.

Latha: The more live news now is that the ECB is likely to indulge in more unabashed Quantitative Easing; it is advising buying government bonds. How will the euro pan out you think over the next few months and how will policy pan out?

A: This is turning into a bit an old chestnut as we saw in English because the ECB and the governor Mario Draghi has been telling us for sometime actually that the balance sheet of the European central bank might expand by a trillion euros. He is certainly sounding very dovish. The problem is that Draghi has a big political problem which is to keep the German Chancellor Angela Merkel on his side in support.

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