THE yen is perhaps the world's most undervalued currency. It is even cheaper than the Chinese yuan by some measures. Last week the Japanese currency hit an all-time low against the euro and its real trade-weighted value fell to its lowest since at least 1970, according to an index tracked by JPMorgan. But do not expect the G7 finance ministers and central bankers meeting in Essen, Germany, on February 9th and 10th to spend much time discussing the yen, let alone to do anything to support it.
American and European policymakers do not see eye to eye on the yen. The Europeans would like some action to push up the currency, which, they say, is not bearing its fair share of the dollar's decline. Our latest update of The Economist's Big Mac index suggests that the yen is a massive 40% undervalued against the euro. America's big carmakers have also complained that the weak yen makes imported Japanese cars unfairly cheap. However, neither the American nor the Japanese government thinks there is a problem. Hank Paulson, America's treasury secretary, says he is not worried about the yen's weakness because it is market-driven and reflects economic fundamentals—namely low interest rates and a fragile economy. China, in contrast, is accused of manipulating its currency with heavy intervention.
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