Reporter of the Economic Business: Wen Qiao Reporter of the Economic Business Business: Lan Suying
Last month, the new smartphone of Apple made a brilliant debut under the attention of global technology fans. But for Japanese "Apple fans", they are both happy and worried - the lowest price of "iPhone14 Pro" in Japan is 149,800 yen (about 7,473.5 yuan), an increase of more than 20,000 yen from the previous model "iPhone13 Pro" when it was released.
is not only a consumer electronic product, but also a fast food industry is raising prices. An international student in Japan told the reporter of " Daily Economic News " that the price of McDonald's fast food restaurant in Tokyo has increased for the second time this year.
Japanese McDonald's Holdings said at the end of last month that due to rising costs and fluctuations in exchange rate , Japanese McDonald's raised the price of products by about 60% of them. Starting from September 30, the price of the signature giant burger rose from 390 yen to 410 yen (100 yen is about 4.97 yuan), and the prices of other commodities rose from 10 to 30 yen. As early as March, McDonald's raised the price of about 20% of the products.
In the environment where the US dollar continues to strengthen, Japanese companies are being hit by the rapid depreciation of the yen, and more and more companies are passing on the negative impact of the economy to consumers.
Against this background, the Bank of Japan interfered in the foreign exchange market again after 24 years. The yen "revealed its true form" after briefly returning to the "145 line of defense" predicted by the market. As of press time, the exchange rate of US dollar to Japanese yen is 145.395. In this regard, Norihiro Yamaguchi, senior Japanese economist at Oxford Economic Research Institute, analyzed to the Daily Economic News reporter that the Bank of Japan's intervention cannot stop the downward trend of the yen, because this is a unilateral intervention by hedging .
USD exchange rate trend against the Japanese yen Image source: British Wealth Information
Since this year, under the background of the implementation of the rate hike in the world by major central banks in the world, the Bank of Japan has firmly defended its yield curve control (YCC) policy and has become the only country among major economies in the world to implement a negative interest rate policy. Why does the Bank of Japan "will do it alone"? What is the logic behind it? Does the Bank of Japan have no choice?
Shigeto Nagai, chief Japanese economist at the above-mentioned institute, told the reporter of the Economic News that if Japan tightens the monetary policy of at this time and raises interest rates, the real economy will face negative impacts. Moreover, moderate adjustment of interest rates cannot effectively prevent the depreciation of the yen.
After 24 years of intervention
9, under the increasingly strong external environment of the US dollar, the yen has been constantly setting new lows.
On September 21, local time, Feder announced a sharp hike of 75 basis points. The yen fell rapidly the next day, and the exchange rate of the yen against the US dollar fell rapidly to the 145 range, forcing Japan to interfere in the foreign exchange market. On September 22, according to the " Nihon Keizai Shimbun ", the Japanese government and the Bank of Japan announced the operation of buying the yen and selling the US dollar to interfere in the foreign exchange market. This is the first time since June 1998 (24 years later) that the Japanese government intervened in the exchange rate by selling US dollars and buying yen.
"The strong dollar (depreciation of the yen) undoubtedly played an important role. In fact, the yen is not the only currency that has experienced a record depreciation." Shigeto Nagai, chief Japanese economist at the Oxford Economic Research Institute, analyzed in an email interview with a reporter from the "Daily Economic News".
"The rise in the US dollar is mainly due to the favorable interest rate spread . Global financial pressure has increased, resulting in the flow of 'safe haven' assets into the United States. At the same time, the changes in current trade conditions have also hit other currencies deeply. The depreciation of the yen is the most serious, because the spread and monetary policy differences (between Japan and the United States) are prominent, and Japan is most vulnerable to the impact of trade conditions due to its trade structure." He explained to the reporter of the Economic Journal.
Image source: Xinhua News Agency reporter Zhang Xiaoyu Photo by
The rapid depreciation of the yen has had a huge impact on enterprises and individual consumers.
Shigeto Nagai said, "The impact of the depreciation of the yen on enterprises, especially those engaged in global businesses, is asymmetric. In the case of stagnation of wage growth, the depreciation of the yen squeezes out the actual disposable income of the household.But on the other hand, weak yen will help export and increase the value of yen from overseas revenues (referring to the returns from foreign direct investment). "
In his opinion, the overall weakness of the yen is unfavorable to growth (Japanese economy). "Export sensitivity to exchange rates has dropped significantly, and the increase in the value of the yen from overseas earnings may benefit the stock prices of companies engaged in global business, but its impact on GDP is limited because a large part of overseas revenue is left abroad. Most importantly, even if corporate profits improve, stagnant wages prevent families from actively spending. "Naoi Shigetoki explained.
At the same time, he said that in this context, families who have suffered from unprecedented trade conditions and small businesses engaged in domestic business urgently need loose monetary policy .
Senior Japanese economist at Oxford Economic Research Institute Nobuhiro Yamaguchi also said in an email interview with a reporter from the Daily Economic News that theoretically, although the depreciation of the yen can promote exports for exporters, Japanese exporters are seeking When pricing strategies, markets tend to maintain export prices, and their positive impact on export volume is smaller than before. Therefore, he believes that the continued sudden depreciation of currency is still hurting the (Japanese) economy.
The firm "solute brave man"
For the yen, its weak trend is intensified by the nature of its monetary policy. Shigeto Nagai also specifically mentioned in an interview with a reporter from the Journal of the Chinese Business Network that a large part of Japan's sharp depreciation was caused by the prominent monetary policy differences between Japan and the United States.
reporters noticed that since the beginning of this year, under the background of major central banks around the world's global interest rate hikes, the Bank of Japan has firmly defended its yield curve control (YCC) policy and maintained its dovish position, which is in sharp contrast with other G10 group central banks. Even after the European Central Bank, the Danish Central Bank and the Swiss Central Bank successively withdraw from the negative interest rate policy, Japan has not given up the YCC framework. At present, the country has become the only country among the major economies in the world to implement negative interest rate policies.
Because Japan is committed to maintaining the current monetary policy This means that the gap between interest rates in Japan and other developed countries, especially the United States, is widening.
Although Japan's inflation level is still relatively low compared with other developed economies around the world, the country's inflation rate in August still reached a 31-year high of 2.8% due to the situation in Russia and Ukraine and the interruption of supply chains. What kind of logic is behind the Bank of Japan's loose monetary policy so resolutely defending loose monetary policy ?
Japan's inflation rate Image source: Reuters
Shigeto Nagai explained to the reporter of the Economic News, "The Bank of Japan believes that the current rise in inflation is driven by supply-side factors, especially the rise in the global commodity price and the depreciation of the yen. We also agree with this view and predict that CPI will drop significantly by 2023 (Japan) and will remain slightly above 1% next year. "
" The Bank of Japan's goal is to achieve the 2% inflation target in a sustainable way, which requires the expansion of demand in a sustainable way while narrowing the export gap. However, from the demand side, the Japanese economy, especially the family economy, is suffering from the severe impact of unprecedented deterioration in trade terms. Based on this, the Bank of Japan believes that now is not the time to tighten monetary policy. "Naoi Shigeto said this.
" And the Bank of Japan will consider withdrawing from the current loose monetary policy only when the negative impact of the loose policy has exceeded its necessity. "He added. The so-called negative effects mainly include the deterioration of the function of the Japanese government bond market, the adverse effects on the profits of banks and financial intermediaries , and the excessive weakness of the yen.
In a report provided by Shigeto Nagai to reporters from the Journal, he wrote, "We believe that these negative effects are not enough to reverse the current central bank's easing measures. It is not clear how the yield curve will mitigate these negative effects." Therefore, we believe that even after Bank of Japan Governor Kuroda Haruhiko left office in April 2023, the central bank had little motivation to lead policy normalization.”
As the interest rate spread of Japan and the United States widens, the traditional "interest spread trade" between the Japanese yen and the US dollar (carry) Trade) surfaced again. The so-called "interest spread trade" means that traders borrowed yen at low prices to invest in high-yield assets elsewhere in the past, and in the past, U.S. Treasury bonds were almost risk-free trades. In the process, they gained very considerable returns.
After the 2008 financial crisis, with major central banks around the world starting to implement zero interest rates and even negative interest rates policies, coupled with large-scale quantitative easing plans that Japan began to start at the beginning of this century, such as buying bonds and other securities, the traditional "interest spread trade" between the yen and the US dollar disappeared with its returns. However, when the Federal Reserve was in When interest rates began to rise in March, borrowing yen to buy U.S. bonds began to become an attractive transaction again.
" Sydney Morning Herald " commented that although the Bank of Japan did not seem to be under excessive pressure due to the reappearance of arbitrage transactions based on the yen and the record short selling level of yen, the situation may change if " Watanabe Madam " (referring to the yen with low lending interest rates, exchange investors who exchanged them for overseas high interest investment as a means of financial management and household management) began to transfer their large amount of deposits to global markets.
reported that "Watanabe's ladies" hold about 1000 trillion yen in cash and fixed deposits. Coupled with their overseas investment history in the 1980s, Japan may face a large amount of escape from domestic capital, which will intensify monetary pressure.
dilemma
After Japan launched a "family heirloom" to intervene in the foreign exchange market, the yen briefly returned below the market's forecast "145 yen defense line". However, there are also many voices questioning the sustainability of the intervention effect.
Nomura Securities analyst Yujiro Goto said that the main constraint on intervention is " Japan Bank h There is a contradiction between the monetary easing of tml3 and the intervention of buying the yen". It seems inconsistent to buy the yen while maintaining monetary easing and creating an environment where the yen is prone to depreciation, which seems inconsistent.
This "uncoordination" also allows speculative funds to take the opportunity to sell the yen. As the yen continues to depreciate and the global raw material prices remain high, Japan is also facing some inflationary pressure. Maintaining monetary easing, the yen will accelerate its decline; tightening monetary policy will also have a negative impact, and Japanese banks seem to be in a dilemma.
"If Japan tightens its monetary policy and raises interest rates at this time, the real economy will face negative impacts. At the same time, moderate adjustment of interest rates cannot effectively prevent the depreciation of the yen. Once the Bank of Japan begins to adjust monetary policy for exchange rates, financial markets will begin to challenge the Bank of Japan, demanding higher interest rates. "Hoshito Nagai said.
"What is more worrying about the currency tightening is its impact on finance, especially on the stability of the Japanese government bond market. The growing demand for spending through government debt financing is stronger than ever for central banks to maintain ultra-low interest rates. Japan's monetary policy will increasingly be restricted by fiscal funding demand rather than price stability targets. "He analyzed. This is also the reason why Japan's current monetary policy framework will not undergo any major changes even after Kuroda's resignation.
From a deeper perspective, in this "foreign exchange war" with no smoke, the Bank of Japan is in a dilemma, and it is also the real dilemma of its national competitiveness declining.
According to Global Network , citing the "Nikkei Shimbun" report, Ueno Daisaku, chief foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities in Japan, said that the last time the yen depreciated sharply was 19 In 1998, due to the financial crisis, the capital market had a strong color of " short selling Japan", which led to the continuous depreciation of the yen. This time, the yen depreciated against the backdrop of stagnation of Japan's exports, which reflected that Japan's competitiveness as a country was declining.
According to the Japanese media "Economist Weekly", in the context of soaring prices of international commodities such as crude oil, natural gas and grain, Japan's trade deficit and current account deficit is constantly expanding.
Since the 1980s, the trade surplus has been the core of Japan's current account, with an annual surplus of more than 10 trillion yen, and even reached 15.7 trillion yen in 1998. But it fell again after this peak, and after the Lehman shock in 2008, the figure dropped sharply to 4 trillion yen, and the current account deficit reached 2.5 trillion yen in 2011.
Image source: Economist Weekly Report Screenshot
Worryingly, the trade and current account deficit (double deficit) may accelerate the depreciation of the yen, triggering stock prices, rising interest rates, falling bond prices, and leading to the emergence of "short selling of Japan". Yamakawa Takashi Yamakawa, head of research at Barclays Securities, pointed out that "the problem of 'short selling Japan' is not the current account deficit itself, but whether it can successfully raise funds for the deficit."
The Economist Weekly commented that the once "rock-solid huge trade surplus and current account surplus" has become history, and Japan's overseas net assets may lose its once highly sought-after status.
"The savings shortage of Japanese public sector is offset by the savings surplus of households and non-financial enterprise sectors, thus maintaining external surplus. Relying on overseas capital inflows to finance the fiscal deficit, the pressure to 'short Japan' has been established." Yamakawa Tsaishi analyzed.
Japanese economic critic Kenshi Fujimoto mentioned in a commentary that the Bank of Japan is facing a crisis of excessive debt due to "fiscal financing" (using the central bank's credit to cover government spending). Except for the Bank of Japan, no other central bank in the world is in this situation.
"In short, if the Bank of Japan tries to tighten monetary policy, the Bank of Japan itself will fall into debt oversupply. Insolvency is the worst form of central bank credibility, and such a bank-issued currency collapses, leading to hyperinflation," Fujitsu Kenshi wrote.
Yamaguchi Nihiro told the reporter of Meike, "The Bank of Japan holds 44% of outstanding Japanese government bonds, which means that monetary policy directly affects debt management policies. raising interest rates or monetary tightening means that the government's interest expenditure increases. At present, the cost of debt repayment accounts for 20% of (Japan) budget expenditure in fiscal 2022. As social aging inevitably increases social security costs, the increase in interest expenses will further limit the scope of expenses for other policies."
"Economist Weekly" said that Japan's top priority is to improve fiscal balance and create an environment to curb "short selling Japan". Will the foreign exchange market intervention work?
According to Nikkei news report, judging from the current account balance expectations on the 27th released by the Bank of Japan on September 26, the "fiscal factors" reflecting foreign exchange intervention have caused a decrease of 3.6 trillion yen to deposit. According to short-term loan companies' estimates, if the Japanese bank does not intervene, the reduction in current deposits should be between 0 and 700 billion yen. It can be inferred that the difference between 2.9 trillion yen and 3.6 trillion yen is the amount of foreign exchange intervention.
In history, Japan has frequently conducted foreign exchange intervention, and the last large-scale intervention of the Japanese government in the foreign exchange market dates back to 2003 to 2004. It is reported that in 2003, the Japanese government sold nearly 20.4 trillion yen. In the first quarter of 2004, another 14.8 trillion yen was sold.
March 2004 became the last time the Bank of Japan intervened in the foreign exchange market. Since then, the Bank of Japan has never intervened in the foreign exchange market again. Even when the global financial crisis in 2008 and the yen strongly broke through the 90 yen-1 dollar mark, Japan has never intervened.
It is worth noting that Japan's largest exchange rate intervention occurred in April 1998. According to Nikkei News, on April 10, 1998, Japan bought the yen to intervene in the exchange rate at 2.6201 trillion yen. After 24 years, the scale of Japan's purchase of the Japanese yen intervention rate is likely to exceed this level, setting a record high.
However, even though Japan conducted its largest intervention in 1998, it did not immediately stop the yen from falling at that time. It was not until August of that year that Russia's debt default and the collapse of long-term capital management hedge fund caused chaos in the financial market, forcing investors to close their positions in yen arbitrage trading, that the yen bottomed out and began to appreciate rapidly.
"I believe that the Japanese government and the central bank will not naively believe that this will achieve a change in the yen-US dollar trend.Their best approach is to slow down the speculative yen depreciation to a certain extent and to gain time until the financial markets are more confident about the peak of the Fed rate hike and the possible easing process in the next period. "Hoshito Nagai told the reporter of the CIJ.
He said, "If there is no change in the monetary policy (Japan) and there is no support from other central banks, the effectiveness of unilateral intervention will be limited. The market may begin to challenge the Japanese Ministry of Finance to test their determination, which could lead to a protracted battle. Although the Japanese Ministry of Finance has a large amount of foreign exchange reserves, it is also limited. "
In Yamaguchi's view, the Bank of Japan's intervention cannot reverse the downward trend of the yen. "Given that this is a headwind, unilateral, and hedging intervention, it is impossible to reverse the situation. I would think it creates a psychological cap for traders—it takes a cost to enter short positions in yen from the current level of the yen. "Yamaguchi Nobuhiro told reporters this.
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