The US dollar rose to 136 against the yen on Wednesday. As the world's third largest economy, Japan allowed its exchange rate to depreciate by 18% in a year, which will increase instability in the global exchange rate market.
The Bank of Japan's interest rate minutes were released on Wednesday. The message sent by the Bank of Japan to the outside world is very clear. The Bank of Japan implements monetary policy to achieve price stability, not to control exchange rate trends.
In the face of continued high inflationary pressure in Europe and the United States, Japan’s inflation rate is obviously much milder, well maintained at around 2%. Europe and the United States are currently anxious about when inflation can be suppressed, while Japan’s focus is on missing the global inflation that has brought Japan If there is no chance of a deflation vortex, once European and American inflation begins to fall, Japan will return to deflation, and deflation will never be solved.
The U.S. inflation rate in May hit a 40-year high of 8.6%, and Japan’s May CPI was 2.5%. Japan’s inflation rate 40 years ago in 1980 was 8.4%.
Japan uses global inflation to bring Japan out of the deflationary vortex and stimulate the economy, constantly suppressing the yields on Japanese government bonds. As long as the yields dare to rise, Japan will suppress them at all costs. On June 15, Japan's 10-year government bond yields experienced an upward trend. However, on June 16 and 17, the Bank of Japan announced an unlimited purchase of government bonds, and Japan's 10-year bond yields fell in response.
The Japanese artificially suppressed the ten-year bond yield, and the gap between US and Japanese bond yields widened, causing the dollar and yen to climb to 136.7 on June 22, the highest in 1998. There is a clear causal relationship between the Bank of Japan's entry into the market to suppress bond yields and the sharp depreciation of the yen.
It is clear that Japan intends to depreciate the yen. On the one hand, the depreciation of the yen increases the import price of Japanese raw materials, which is helpful for Japan to get out of the deflation vortex. On the other hand, the depreciation of the yen enhances the competitiveness of Japan's manufacturing industry, causing the attractiveness of trade goods from other countries to decrease. . Killing two birds with one stone, the Japanese themselves were very happy.
However, Asian countries are generally export-oriented, and exports are their lifeblood. Japan is undoubtedly feeding itself by allowing the yen to depreciate, leaving risks to other countries. Global economic expectations for the second half of 2022 are generally not optimistic, and Asian manufacturing countries generally feel the pressure of downward global demand. At this time, expectations are already weak, and Japan has also gained an abnormal export competitive advantage by allowing the yen to depreciate. Everyone has an idea. In 2015, the risk of currency devaluation in many major Asian countries has greatly increased.
In 2015, Japan allowed the yen to depreciate to 125, which led to the depreciation of currencies in many Asian countries, capital outflows, and a general decline in Asian stock markets.
The global economy will face risk pressure in 2022. Following high inflation, economic downturn expectations, geographical uncertainty, and currency exchange rate war risks, the risk has increased significantly. The risk of a currency war triggered by the Bank of Japan allowing the yen to depreciate. (Opinions are for reference only)
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