cover news reporter Zhu Ning
html On July 11, as of press time, the Japanese yen fell 0.69% against the US dollar to 137.022 yen per US dollar. In the morning, the yen once fell below the 137 mark against the US dollar to 137.12, the lowest since 1998.On the news, according to a report from the Financial Associated Press on July 11, Bank of Japan Governor Haruhiko Kuroda said that the short-term and long-term policy interest rate targets are expected to be maintained at current or lower levels; he will not hesitate to increase the rate when necessary. While easing policies, we will continue to pay close attention to the impact of the epidemic on the economy.
The yen continues to depreciate
html On July 8, former Japanese Prime Minister Shinzo Abe was assassinated. When news of the assassination came out, the yen, which had continued to plummet this year, bucked the trend and rose.Since the beginning of this year, the yen has continued to depreciate against the U.S. dollar, with 1 U.S. dollar reaching 136 yen per yen. The yen exchange rate has hit a 24-year low. Looking at this year alone, the yen’s depreciation during the year has been close to 20%. Becoming the weakest mainstream currency this year.
The news of the assassination of former Prime Minister Shinzo Abe instead stimulated the weak yen to rebound rapidly during the session. The reason behind this is that the current sharp depreciation of the yen is mainly due to the large-scale monetary easing policy implemented by the Bank of Japan, and Shinzo Abe is A major supporter of current Bank of Japan Governor Haruhiko Kuroda. His unexpected death also made the market worried about the prospects of Japan's ultra-loose monetary policy.
But judging from today's market performance, this concern seems to be temporarily alleviated. At the opening of trading on July 11, the yen fell below the 137 mark against the US dollar in the morning to 137.12, the lowest since 1998. At the same time, Japanese stocks also rose sharply. The Nikkei 225 index rose by more than 2% in the morning and ended up rising by 1.11% to 26,812.3 points.
The reason why the Bank of Japan insists on loose monetary policy may be that it hopes to inject blood into the weak domestic economy, and the sluggish macroeconomic fundamentals have become the fundamental reason for the decline of the yen. Comparing the macro data of major economies, reporters found that the economies of the United States and Europe returned to pre-epidemic levels as early as the second and third quarters of last year, but the Japanese economy has not yet returned to its pre-epidemic normal state.
Some analysts pointed out that the Japanese government hopes to drive the depreciation of the yen by maintaining a loose monetary policy, and use the downward momentum of the yen to create a virtuous cycle of significant growth in exports, moderate price increases, and continued improvements in corporate profits, employment, and wages, and ultimately achieve the goal of A comprehensive boost to the macroeconomy.
Stick to monetary easing
Bank of Japan Governor Haruhiko Kuroda insists that Japan's low inflation means domestic interest rate increases do not have to come close to the Fed rate hikes -- at least not yet. Separately, Kuroda reiterated on Monday that he would not hesitate to increase monetary stimulus if needed to boost the sluggish economy. It should be noted that Haruhiko Kuroda’s speech this morning was his first statement after the assassination of former Japanese Prime Minister Shinzo Abe.
What’s more noteworthy is that he has made many statements on Japan’s monetary policy this year. On March 25, Haruhiko Kuroda said that "a weak yen is generally beneficial to the economy." On April 29, Haruhiko Kuroda reiterated that "the depreciation of the yen is generally beneficial. The main reason why the Bank of Japan promotes the depreciation of the yen is that Japan's economic fundamentals are weak and it is still not free from the risk of deflation."
html On June 6, Haruhiko Kuroda made it clear that "it is necessary for the Bank of Japan to continue to implement an active loose monetary policy for three main reasons." First, the Japanese economy is still in the post-epidemic recovery stage, real GDP has not yet returned to pre-epidemic levels, and employment and income conditions are still relatively weak. Second, Japan is an importer of commodities. The recent rise in international commodity prices has led to the deterioration of Japan's terms of trade. It is necessary to continue to implement monetary easing to alleviate this negative impact. Third, the 2% price stability target needs to be achieved in a sustainable and stable manner.The Japanese yen's "safe haven currency" may not be worthy of its name
As the depreciation of the Japanese yen accelerates, the counter-trend operation advice of buying the Japanese yen is becoming louder and louder. The simple market logic is that cheap safe-haven currencies should be the best choice to hedge against the increasingly uncertain global economy.
In response, Benjamin Shatil, head of Japan foreign exchange strategy at JPMorgan Chase , believes that investors should be wary of suggestions that the yen is seriously undervalued. None of this takes into account structural changes in the Japanese economy that have fundamentally changed the context in which the yen trades. The most important change is the change in Japan's import and export balance over the years.
Benjamin Shatil said that so far, the yen has not lived up to its reputation as a safe haven, partly due to the decline in popularity of the yen "carry trade". The so-called carry trade uses the yen to finance the purchase of assets with higher yields elsewhere.
Over the past decade, faced with a flood of currencies with low to negative yields, traders have borrowed yen far below pre-financial crisis levels. Bank of Japan data shows foreign banks borrowing yen from their Tokyo subsidiaries - a measure of foreign demand for yen funding - is just 40% of its pre-financial crisis peak.
The financial crisis prompted investors to rush to sell risky assets, quickly unwinding transactions financed with yen, and pushing the yen up 19% against the dollar in early 2008. Now, in times of market stress, people are no longer rushing to buy back the yen to close their positions.
CITIC Securities also said that due to the strength of the US dollar, the volatility of traditional safe-haven currencies such as the Japanese yen and the Swiss franc has been amplified, and the safe-haven properties under geopolitical conflicts are not obvious. Since the middle of 2021, the US dollar index has entered an upward channel. Before the Russia-Ukraine conflict broke out on February 24, 2022, the US dollar index had been running above the 95 mark for many consecutive months. After the outbreak of the Russia-Ukraine crisis, risk aversion in the global market quickly heated up, and demand for hedging drove funds to flow into safe-haven assets such as the U.S. dollar, U.S. bonds, and gold. Compared with the rise of the US dollar, the Japanese yen and Swiss franc, traditional safe-haven currencies, performed mediocrely and did not appreciate significantly due to market panic.
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