Salient to Investors:

Banco de Mexico Governor Agustin Carstens said:

  • A perfect storm may be forming as risk appetite has returned and the search for yield is in full force: concerns of asset-price bubbles fed by credit booms are starting to appear.
  • Japan is actively pursuing a depreciating real exchange rate strategy.
  • Avoidance of the US fiscal cliff, gradual and steady progress of reforms in Europe, and faster growth in China have improved market sentiment.

The risk of a currency war has surfaced as monetary easing from Japan to the U.S. spurs demand for higher-yielding assets and boosts inflows into emerging markets.

Mitul Kotecha at Credit Agricole said he wouldn’t go as far to suggest a full-blown currency war, but tensions and frictions started off by Japan will intensify.

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