"Now, however, interest rates are converging around the world leading to a lack of obvious currency direction according to what previously drove flows. As a result, according to BNYM, investors should look to the nationalisation of debt being the dominant fx driver in the near future.

With the US expected to spend some $3,700bn in the next two to three years defending its economy, it is most likely the dollar will be most significantly affected, as their spending programme and debt raising will be the biggest.

Furthermore, the US has no choice but to become increasingly dependent on the printing presses as debt financing from traditional dollar surplus-holding countries will fallback alongside the slowdown in the growth of their reserves. This becomes increasingly likely as domestic spending programmes take priority. Without the inflows, overdependence on quantitative easing runs the risk of tipping the economy from a deflationary to an inflationary environment very quickly.

This becomes all the more likely because the alternatives to QE are so few. BNYM highlights that according to the IMF, even if US savings rose to 8 per cent of GDB, that would only raise $830bn by 2010 - a fraction of the spending needs."

"BNYM’s conclusion: Japan is clearly facing a renewed era of deflation. With that it will have no alternative but to turn on the printing presses at force and even possibly intervene in propping up their stock markets again, something that will ultimately lead the yen to revert to its weaker millennium averages — the analysts’ three-month target being 105 to the dollar.