Yen Meddling—What Has Japan Started?

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Japan's new government certainly isn't mincing its words about wanting a weaker yen.

Deputy Economy Minister Yasutoshi Nishimura said on Thursday the yen's fall was not over and a move to 100 per dollar would not be a concern – a comment that sent the yen tumbling 2 percent overnight with the currency a 2-1/2 year low at about 90.65 to the greenback on Friday.

Weakness in the yen, while good for Japan's exporters and an economy in recession, means stronger currencies elsewhere, with Tokyo now expected to face increased resistance to any efforts to engineer a weaker currency.

"Currency wars are very real and will continue to grow in 2013 as the yen continues to weaken," Michael Woolfolk, senior currency strategist at BNY Mellon in New York told CNBC Asia's "Squawk Box" on Friday. "Expect a lot of official dialogue over the next year with regards to yen weakness."

(Read More: What Would Really Spark a Currency War?)

It's a view that billionaire financier George Soros shares. A potential currency war is brewing, he told CNBC on Thursday.

In fact, rhetoric globally regarding currencies has started to pick up: German Bundesbank President Jens Weidmann warned this week of the "politicization of exchange rates," German Chancellor Angela Merkel on Thursday expressed concern about currency manipulation and South Korea's finance minister said on Wednesday Seoul would fight the rapid appreciation of the won, which is hurting exporters.

"One issue that is sure to arise is complaints from Asian nations, which will be seeing currency appreciation against the yen and that cross-yen movement is going to be very painful for them. So nations like Korea, Taiwan, also Southeast Asia, could step-up currency intervention, grow their foreign exchange reserves to keep their currencies from strengthening," said Woolfolk.

The yen has weakened 14 percent against the South Korean won, the U.S. dollar and the Australian dollar since mid-November. It has depreciated about 11 percent against the Taiwan dollar and some 18 percent against the euro.

The backdrop to the yen's sharp and rapid weakening is a new government led by Prime Minister Shinzo Abe that came to power in elections in December determined to kick start Japan's economy by pushing the central bank into a more aggressive monetary policy, something that implies a weaker yen.

Japan's central bank obliged this week by adopting a 2 percent inflation target and making an open-ended pledge to pump trillions of yen into the economy via asset purchases from 2014.

(Read More: Japan May Stop Dragging on Global Growth Finally)

Enter the U.S.?

Paul Mackel, head of Asia currency research at HSBC in Hong Kong, says he will be watching any comments that come out of the U.S. authorities in the weeks ahead regarding dollar/yen.

"Clearly there is ... more concerned about yen weakness. I think as we get closer to the G20 meeting that's becoming more apparent with policy makers globally," Mackel said. Finance ministers from the group of 20 developed and emerging countries (G20) are due to meet in Russia next month.

"They all want a weak currency, but somebody's got to lose. I think we've had comments from Germany, we've had some indication from some other authorities. The one place which would have quite a meaningful market impact would be if U.S officials start to say something more overtly," he told CNBC's "Cash Flow." "That would have quite a meaningful effect on dollar-yen."

David Greene, a senior corporate FX dealer at Western Union Business Solutions in Sydney, agreed, noting strong criticism by the U.S. in recent years to a Beijing's policy of keeping a tight control of the yuan, which lawmakers in Washington have complained gives Chinese exporters an unfair advantage.

"I reckon we are going to see a lot more rhetoric coming out, especially from the U.S.," Greene said. "The U.S. will probably be a little more vocal if the yen weakness continues. And also because of their stance against the yuan and the pressure China has been under to float its currency."

(Read More: Yuan as a World Currency? Getting There Fast)

And with the yen in focus globally, Japanese Finance Minister Taro Aso on Friday defended the Bank of Japan's monetary moves, claiming they are aimed at pulling Japan out of deflation and not at manipulating currencies.

Play Fair

Criticism about Japan's currency policy by some of its trade partners may be a little unfair, some analysts said.

"The Germans have got a lot of cheek here to be talking about yen weakness and export competitiveness when Germany has an enormous trade surplus," said Sean Callow, senior currency strategist at Westpac Bank in Sydney.

Germany's trade surplus increased to 17 billion euros in November from 15.8 billion euros in October, according to latest official data.

"Korea and Germany are speaking from a position of strength. Korea's current-account surplus was at a record in 2012, so they've got an extremely strong trade position and their currency's going to be under appreciation pressure anyway," he added. "And they really shouldn't be losing too much sleep about yen weakness, because the sustainability of the yen decline is doubtful."