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World on Brink of ‘Currency War’ After Japan Move: Russia

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Jan. 16 (Bloomberg) -- The world’s leading economies are on the brink of a “currency war” to keep up with Japan and use devaluation to boost their competitiveness, Russia’s central bank said.

“Japan is weakening the yen and other countries may follow,” Bank Rossii First Deputy Chairman Alexei Ulyukayev said at a conference in Moscow today.

The yen touched its lowest level in two years this week against the dollar on bets the Bank of Japan will raise its 1 percent inflation target and introduce more monetary stimulus at its Jan. 21-22 meeting. The euro remained lower following a drop yesterday after Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the currency shared by 17 nations is “dangerously high.”

Reciprocal devaluations would hurt the global economy, Ulyukayev said today. Russia’s central bank, which manages the world’s fourth-largest stockpile of international reserves, didn’t buy or sell dollars or euros in December for the first month since at least August 2008, when the regulator started publishing the data.

The ruble was little changed at 30.346 per dollar at the start of official trade today. The Russian currency was also steady versus the euro at 40.30 and at 34.821 against the dollar-euro basket the central bank uses to minimize swings.

‘Counterproductive’

Bank Rossii is unlikely to undertake its own monetary easing measures anytime soon because the economy is already expanding in line with its potential under current circumstances of about 3.5 percent a year, Ulyukayev said. Cutting interest rates or taking “quantitative easing” measures would be “counterproductive” at the moment, Ulyukayev said.

Russia’s central bank left key borrowing costs unchanged in a review yesterday, holding the refinancing rate at 8.25 percent for a fourth month, as forecast by all 19 economists in a Bloomberg survey.

The euro, which has gained 8 percent versus the dollar in the past six months, tumbled today as much as 1.8 percent to 117.60 yen before trading at 118.14 yen, down 1.3 percent. It reached 120.13 yesterday, the highest since May 2011. The Japanese currency appreciated 0.8 percent to 88.79 to the greenback after weakening yesterday to 89.67, the lowest level since June 2010.

To contact the reporters on this story: Scott Rose in Moscow at rrose10@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net;

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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