As a result of Chinese currency manipulation, the Bank or Japan has started selling Yen to keep it from strengthening it too much, which wold kill exports and likely create a trade deficit.

This the first time that this has happened in 6 years, but there is a twist to what the BoJ is doing:

At first glance, the action looks like a something-must-be-done-this-is-something -therefore-this-must-be-done move: a new prime minister and a “bold action” doomed to be proved ineffectual. The FX markets are so enormous (dollar/yen alone trades some $750 billion per day) that it’s hard to believe a single sale of less than $20 billion in yen could even have the short-term effect we saw last night, let alone have any lasting consequences.

But this isn’t just about FX-market intervention. This is also about monetary policy, and that could make a real difference:

………

In other words, the Bank of Japan isn’t simply selling yen, it’s printing yen. (And then selling them.) Given (a) that it’s the central bank and that it can print as many yen as it likes, and (b) that it would actually welcome a bit of inflation, there’s actually a non-negligible chance that this kind of non-sterilized intervention could work.

The term “non-sterilized” means printing money.

The Federal Reserve could do the same thing, and getting the dollar to a reasonable level versus the Chinese Yuan, and some inflation right now would be a good thing.