How the Falling Yen Can Save the Euro

Japan’s new bond-buying program amounts to a declaration of currency war against its trading partners, no matter how you sugarcoat it. Yet it may also prove constructive for the euro area, jolting Germany to at last adopt more growth-friendly policies. How else is Europe to overcome the deflationary sting of a depreciated yen, if not with a growth boost from the German government?

The Japanese currency fell by more than 20 percent against the euro in the past four months. Japan accounts for between 3 percent and 4 percent of Europe’s trade, but that understates the impact a weak yen has. Exports make up about 50 percent of gross domestic product in Germany, the euro area’s dominant economy. German carmakers and heavy machinery giants go head to head with their Japanese equivalents around the world, and they will have to cut prices to compete.