Korea is upset, Taiwan is fretting, European policymakers are on edge - and talk of a currency war is everywhere.
That's a problem, since a currency war is just about the last thing the fragile global economy needs. Just for starters, the yen's swoon over the last few months is weighing heavily on the export industries in neighboring countries. And a round of competitive devaluation in response could set off punishing rounds of inflation and painful swings in national economies - not to mentioning heightening geopolitical tensions.
The G7 nations have tried to step into the fray, issuing a statement ahead of the upcoming Moscow G20 summit that seemed to endorse market-driven exchange rates.
"We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets," it said in part. "We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates."
Those comments came just a day after a senior Treasury official said the U.S. supports Japan's efforts to beat deflation give its economy a lift.
(Read more: CNBC Explains: Deflation)
But after forex traders responded to the initial G7 statement by sending the yen lower and the euro higher - not exactly, one can assume, the response the G7 was aiming for - a G7 official said in a "clarification" that the comments were intended to signal concern about the yen's rapid fall.
"The G7 is concerned about unilateral guidance on the yen," the official said. "Japan will be in the spotlight at the G20 in Moscow this weekend." Not surprisingly, the yen soared against the dollar after the second statement - even though, as Brown Brothers Harriman chief currency strategist Marc Chandler said, it was "a bit rogue."
So is this is the beginning of a truce in an incipient currency war? Or just confusing back-and-forth ahead of a multilateral confab?
Kathy Lien, a managing director at BK Asset Management, is skeptical. She argues that the G7 statement - and amendment - were an attempt to avoid upstaging the G20 meeting at the end of the week. "Currency war will definitely be discussed" at the G20 meeting, she told me, but Japan will hardly be the only country to feel the heat. "With so many guilty parties, I think the best you will get is what we have heard from the G7, which is a commitment to using fiscal and monetary policy only to acheive domestic goals."
Steven Englander, global head of G10 FX strategy for Citigroup, questions whether even Japan will respond to the commentary. "They are the most popular government in years based on their policy and are probably more worried that the Nikkei dropped two percent on Friday" than about comments from the G7, he told me.
Rebecca Patterson, chief investment officer at Bessemer Trust, is also in the doubters' camp. "It is interesting that the G-7 would say that countries should not target a specific exchange rate (that's exactly what Switzerland – not a G-7 member – has done in recent years), but could use currencies to achieve economic goals. As long as you don't say what your target it, you can do what you like with your currency?" she asks rhetorically.
Patterson argues that the U.S. may have actually sown the seeds of the current currency tensions with its quantitative easing program.
"The Fed's QE policies may have helped the US economy and lifted certain asset prices, but it also has had unintended consequences, including creating the perception globally that policymakers can do what they like – with less global coordination that occurred in the past." Today's statements, she says, "seemed to reinforce a sense that all policymakers are on their own these days."
It's hardly the sense investors want with currency-war talk in the air. Better keep a close watch on the goings on in Moscow.
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