The yen's weakness, which pushed it to a six-year low against the dollar last week, spells danger for the world economy, says Albert Edwards, chief global strategist for Societe Generale.

"We have long believed that investors ignore Japan at their peril," he writes in a commentary provided to Moneynews.

"We have felt for some time that a fragile Chinese economy could be pushed over the edge by a further yen devaluation, in many ways a replay of the Asian crisis of 1997. . . . The next phase of global currency wars may have begun."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

A plunging yen hurts the Chinese economy by pushing the renminbi higher, thereby stifling Chinese exports at a time when the country's economic growth already is slowing.

"Second, a weak yen spells trouble for the West as a wave of deflation washes in from the
rapidly devaluing East," Edwards writes.

"I believe that profit growth is so anemic in the west that this monetary tightening via strengthening exchange rates could in itself be sufficient to send U.S. and European profits into outright decline and subsequently their economies into recession."

The dollar traded at 108.97 Monday, after climbing to 109.46 yen last week.

David Wessel, director of the Brookings Institution's Center on Fiscal & Monetary Policy, also is concerned that the world "may be on the verge" of a currency war, as he writes in The Wall Street Journal.

"Japan has already managed to depreciate its currency," he says. "Now the spotlight is shifting to Europe."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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