THE SWING OF THINGS

It is a subject closer to Japanese hearts than you might expect. Shinzo Abe, the new premier in the land where there hasn't been a rising economic sun since the 1980s, recently announced a vast stimulus programme including QE to counteract the fact the yen is up about 2% against a basket of world currencies since the start of the financial crisis over five years ago. This had been caused, he said at the time, by other countries printing money.

King, who has been pushing for more British QE, told Tokyo the opposite. Policies like printing money and ultra-low interest rates were designed to help rekindle UK growth, even if it hadn't happened in time to save the top credit rating.

"If a country is pursuing policies to improve the domestic economy, that could push down the currency a bit. But that would lead to increased domestic spending," he said, indicating that net exporting nations like Japan would, in fact, benefit in the process.

Almost 7000 miles away in Washington DC the same day, Ben Bernanke, chairman of the US equivalent Federal Reserve, was telling the Senate banking committee something strikingly similar. The Fed's announcement last September that it was kicking off a third round of its own quantitative easing (QE3) to top the $2.3 trillion (£1.5tn) already printed since 2008, while keeping the base rate at close to zero until at least 2015, was widely seen as the catalyst for Japan's stimulus decision.

But like King, Bernanke told congressmen last week his policies were focused on reviving the US economy at home.

"We are not engaged in a currency war. We are not targeting our currency... It is entirely appropriate to use monetary policy to attain domestic objectives."

Any accusation of currency war will raise the temperature. Such activities recall the Great Depression of the 1930s, where many countries aggressively devalued their currencies to try to make themselves more competitive. This helped to bring about a breakdown in free trade as struggling countries raised trade barriers to protect local producers, which helped set the scene for the second world war. Hence the Group of Seven Industrialised Nations agree it is not acceptable to target your exchange rate with the sole aim of raising your exports.

The most obvious way to manipulate a currency is for the central bank to buy it on the markets or sell its reserves of another country's currency. The central banks of countries such as China, which peg their currencies to the dollar, regularly intervene in this way to ensure their exchange rate moves in line with the dollar (and the Chinese have often been criticised by the US for choosing a rate that is lower than is supposedly fair).

Others such as Switzerland and Japan have intervened here and there when they think their currency has become too expensive. Most Western countries, including the UK and US, allow their currencies to float freely without trying to affect supply and demand directly.

The charge against them is that their policies amount to the same thing, since printing money and offering super-cheap credit are aimed at increasing the money supply too. Not only does this make the exports and labour of competing countries relatively more expensive, goes the argument, it also means banks and other investors have extra money with which to move markets. If a currency like the Brazilian real is already strengthening relative to the dollar because of American QE, investors will exacerbate this by using their extra money to bet that it will rise higher.

The currency war accusations are not new for the likes of Bernanke and King. Countries like Brazil, China and South Africa similarly pointed fingers when the US launched QE2 in 2010. The Fed chairman has always denied the charges while accepting there might be collateral effects on other currencies.

He says they have a choice between letting their currencies go up against the dollar or having their central banks intervene to maintain their dollar pegs. In other words, they can either live with becoming a bit less competitive or accept some inflation caused by the fact that their imports will become more expensive.

DOES this amount to currency war? Well, it's a question of emphasis. Nick Stamenkovic, macro strategist at RIA Capital Markets in Edinburgh, describes the UK policy as "benign neglect to the currency as long as it doesn't fall too sharply and cause too much inflation".

He points out that incoming BoE governor Mark Carney looks likely to tilt policy further in this direction when he arrives in July, amid suggestions he is considering widening the Bank of England's priorities from keeping down inflation to focusing on economic growth to the same extent.

"The US hasn't been averse to a weak currency in an environment of low inflation. The ECB [European Central Bank] is probably the only one that shows any contrast. It is still committed to its inflation target, and a stronger currency helps that.

"So I wouldn't say we're in a full-blown currency war, but when you want to boost your economy, one way of doing that is certainly to manage your currency lower."

Jim Rickards, a New-York-based hedge-fund manager and author of last year's bestselling Currency Wars, argues that the policies of the Americans, the British and Japanese are somewhat more overt.

"The more they deny this, the more it becomes apparent we are in a currency war that no-one wants to talk about. It's seen as being OK to cheapen your currency if it's for domestic purposes. That's like saying if I burn down your house in anger that's bad, but if I do it to stay warm that's OK. In both cases, your house gets burned down."

If these countries are really focused on devaluing, it must be said the results have been patchy. Certainly, the yen has plunged more than 5% since the start of the year on the back of Shinzo Abe's stimulus. But the pound rose between 2009 and 2012, despite all of the British QE happening at the same time. During 2013, with QE stopped and Mervyn King yet to convince a majority on the monetary policy committee that another round is right for the economy, sterling has dropped 6%.

Policymakers say it was driven up in 2012 by becoming a safe haven for investors fretting about the eurozone and the US, and has fallen as fears have subsided. This narrative might have been somewhat undermined by last week's destabilising Italian election result, but sterling has so far kept falling amid the loss of the triple-A and talk of moving to negative interest rates.

As for the Americans, the logic of supply and demand is not so far attaching itself to their monetary policy. Since the start of the year, despite the government doing little more than playing for time on the big fiscal cliff problem, the dollar is up almost 4% – to which Jim Rickards responds that it can take a while to get the currency that you want and the Fed will keep printing money until it succeeds.

Whether devaluing actually achieves its purpose is also highly debatable. HSBC analysts recently published a note suggesting the British devaluation of around 20% between 2007 and 2009 added between 2% and 3% to GDP. On the other hand, a chew through the export figures for the past seven years shows there were only three years where they moved in the direction you would expect in view of what was happening to the currency – not what you would expect if cheap sterling was really marching powder for the "makers" hailed by the Chancellor.

Nick Stamenkovic says: "The UK currency fell quite sharply between 2007 and 2009. Exports over that period and since have been disappointing to say the least."

Kenneth Murray of Edinburgh-based Blue Planet Investment Management, says: "Nobody ever wins with currency wars, least of all the countries that engage in them," citing Italy, which eroded confidence in its pre-euro currency by endless deflation.

Jim Rickards believes the reason why the UK, US and Japan are expanding their money supplies so aggressively is so their devalued currencies will raise import prices. "They are doing this to import inflation," he says. "Each of these countries is scared to death of deflation and desperate to get inflation. But the policy is foolhardy and will produce disastrous results. The Fed thinks it can nudge up inflation like a thermostat, but they are dealing with a nuclear reactor. It will run away from us in unexpected ways."

These are the stakes the central banks are playing for. On the upside there is not much inflation yet. On the downside, there is not much growth either. Brace yourself for when the roulette wheel finally stops.