Column : The times they are a changin’

Elsewhere, the recent landslide victory of the LDP in Japan on a platform of aggressive economic stimulus is already triggering radical change at the Bank of Japan. The new PM Shinzo Abe has already requested that the central bank replaces its current 1% inflation target with a new, more expansionary 2% target. This could be adopted as soon as the Bank of Japan's next policy meeting in early January. And with current Governor Shirakawa stepping down in March, his (as yet unknown) replacement is likely to further accelerate the central bank's money printing, deepening concerns about its independence.

The Bank of England will also see a change of leadership with the Canadian Mark Carney replacing Mervyn King as Governor of the 'Old Lady' in June. Mr Carney has already signalled his radical intentions by floating the idea of a nominal GDP target whereby the central bank targets the growth rate for overall economic growth including both output and prices. The People's Bank of China is also set for a change of leadership and its new Governor is similarly expected to pursue growth-orientated policies.

All told, the central banks of the world's developed economies are becoming more desperate in their attempts to out-run the wreckage of the global financial crisis using the printing press. Should we be worried about inflation? Yes, but given the degree of spare capacity in the world economy and the long lags always involved with monetary policy, inflation is probably more a story for 2014 or even further out. Ditto the global bond market crash that accelerating inflation will inevitably trigger. In the here and now, currency markets will be driven by this unfolding battle of the central bank's balance sheets. The US dollar should be soft in the first half of the year reflecting the Federal Reserve's faster money printing but other central banks are likely to fight back later in the year.

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