Economists Arbitrarily Warn Pound May Fall Below Parity with Euro, Deflation in Japan may lead to Monetary Easing

This has been sparked by what the Times calls "unconvincing plans" to deal with the government's £178m budget deficit. The pound is trading at 1.10 versus the euro. The closest it got to parity was 1.02 one year back. Expectation of a Tory election win and consequent tougher action to tackle the currency slide is preventing the pound falling further, some observers say. Douglas McWilliams, Chief Exec of CEBR, is betting on parity being broken. A heightened risk of a downgrade to Britain's sovereign debt rating has been mentioned too. More technical currency stories can be read about here.

Japan had 9 months of deflation in November, with weak demand hitting prices. This is putting pressure on BoJ for monetary easing. Japan's public debt is currently around 200% of GDP. Japan's GDP per capita has been decreasing since the bubble burst in 1990. Japan's IIP at year end 2008 was 225 trillion yen, a 9.9% decrease from the previous year, the first decrease in 3 years, mainly due to appreciation of the yen (and resultant decrease in value of foreign-currency denominated assets). Assets included derivative products (mainly currency options held by banks).