With interest rates being cut by Central Banks all across Asia, many have predicted a looming currency war in the region. Has Asia already entered a currency war? And if not, what will be its tipping point?

The stage seems to be set for a full-blown currency war in Asia as Central Banks across the region are weighing their options in reaction to an overall weak global economy.

The Malaysian Ringgit, Thai Baht, and Indonesian Rupiah are just a few of the Southeast Asian currencies that have initiated interest rate cuts—allowing a slow depreciation of their currencies.

In mid-March, South Korea followed suit when its Central bank announced an interest-rate cut to a record low of 1.75%.

The steady stream of rate cuts are occurring against the backdrop of a rapidly depreciating Japanese Yen. The Yen currently stands at a 13-year low having lost approximately 16% of its value in the past 9 months.

South Korea is especially sensitive to the Japanese Yen due to their direct competition with Japanese firms. However, Bank of Korea Governor Lee Ju-yeol refused to attribute the interest rate cuts to any sort of currency war.

With malice towards whom?

The question of whether Asia has already entered into a currency war can be determined by motive. While the actions of Central banks may seem war-like, they do not appear to have been made with any malicious intent.

Some analysts have simply classified the cuts as an attempt to meet inflation targets. With the global economy weak all around, many countries are facing strong deflationary pressure. Interest rate cuts can be a measure to keep up with target inflation rates.

The problem is that the countries that have struggled with reaching their inflation rates are global heavyweights whose monetary policies have direct effects on the global market.

On the other hand, one could safely classify these moves as a “competitive devaluing” if the intent of Central Banks were to boost exports by lowering exchange rates and decreasing the price of exports.

Decisive evidence of a currency war would come in the form of Quantitative Easing (QE); when the base rate hits zero and Central Banks go on a spending spree to buy back assets. But none of the aforementioned Asian countries have gone so far as to take these measures with the exception of Japan.

Follow the leader

The use of expansionary monetary policy to address economic woes should come as no surprise as the United States led the way in making use of QE to remedy their economic gloom. Under the US program, the price of assets from equities to real estate have appreciated, inflation has turned positive—although not quite at the 2% target—and employment has gone up.

Japan, on the other hand, has been stagnant since the turn of the 21st century. In reaction to these conditions, Japan has responded with their own aggressive QE program which triggered the ensuing depreciation of the Yen. Furthermore, it is safe to say that Japan’s intent was in fact to boost exports. A boost in exports could help jumpstart demand and create jobs while fighting deflationary pressure.

However, one country undergoing intense QE is hardly reason to sound the alarm of a “currency war.”

All eyes on China

If there is to be a tipping point for the looming currency war, China has its finger on the trigger.

As the world’s second largest economy, China is dealing with an economic transition that needs to address rising wages and slowing growth. China’s exports have plateaued and their competitive edge has been challenged as their currency has appreciated more than 10% in the last year. A devaluation of the yuan would help boost exports as well as help regain some of the lost competitiveness.

China has already undergone a “mini-QE” much like the stimulus program of the European Central Bank (ECB) but they have been cautious due to the potential for a massive capital outflow that could result in destabilizing the credit market and endangering Chinese companies.

Any devaluation of the Chinese Yuan would be especially harmful for South Korea, Japan, Taiwan, and Malaysia as China is a major buyer of their exports.

So despite all the talk of a currency war, no country in Asia seems to have gone full scale “hostile mode.”

But if the region’s biggest economy—China—were to launch on offensive in response to its growing pains, other countries in the region would likely have no choice but to follow suit to protect their own competitiveness.