IMF advises caution as Japan, Brazil cap currency values

Dominique Strauss-Kahn, the head of the International Monetary Fund (IMF) has warned that the growing urge among nations to cap the strength of their currencies risked derailing global economic recovery.

His statement comes after Japan and Brazil intervened to cap the strength of their respective currencies - the yen and the real - to make their currencies more competitive in the overseas markets.

Brazil on Monday doubled a tax on foreign investors buying its high-interest bonds to 4 per cent to curb a strong real. Brazil's finance minister had earlier warned of an international "currency war."

Japan last month intervened to weaken the yen. This was followed by a couple of emerging economies.

Slow economic growth and high unemployment in most rich countries have left export-dependent economies to seek cover of weaker currencies.

This has been further fueled by fears that the US Federal Reserve may announce a fresh round of policy easing to weaken the dollar against China's rebuttal of its demand for a a faster rise of the yuan.