In the latest Global Financial Stability Report (GFSR) released on the 11th, International Monetary Fund (IMF) pointed out that since April 2022, global financial stability risks have increased, global market liquidity has deteriorated, and the vulnerability of many governments and financial institutions has increased.
In addition to the British market, which is still in the eyes of the storm, Japan seems to be another example of the rising risks of global financial stability. This week, Japan's foreign exchange and bond markets were once again under pressure. The yen fell below the level of previous foreign exchange intervention by the Bank of Japan, and the market speculated whether there would be a new round of intervention. The 10-year Japanese Treasury bond has failed to reach a deal for three consecutive days, the first time in 1999 that some investors bet that the Bank of Japan will have to give up its yield curve control (YCC) policy.
yen fell below the important intervention point against the US dollar
After hitting a three-week high of 145.895 yesterday, the US dollar rose further to 146.23 against the yen today during the Asia-Pacific period, surpassing the 145.90 level last month, which prompted the Japanese government to intervene in the foreign exchange market for the first time since 1998, and this time triggered speculation about whether and when the Japanese government will intervene in supporting the yen again. In September, the Japanese Ministry of Finance spent 2.84 trillion yen (about 19.6 billion US dollars) to support the yen.
Although the Japanese government has intervened before, as central banks around the world are actively hiking interest rates to curb inflation, the Bank of Japan continues to maintain quantitative easing policies, which always puts pressure on the yen. This week, a sell-off of US Treasury bonds pushed the dollar higher and increased pressure on the yen.
Yoshio Iguchi, managing director of Traders Securities, a Tokyo-based financial institution, said: "The US dollar/yen broke through 146 today, but it may only last for a short time. Various long-shoulder struggles will continue, and traders want to test the upward trend, but are afraid that further gains will be offset by a new potential round of intervention in Japan." For now, traders will regard the 1998 high of 147.66 as the next key goal.
However, some strategists believe that Japan may not necessarily set specific points to decide whether to intervene, and may pay more attention to the rate of the decline of the yen. Ray Attrill, head of foreign exchange strategy at National Australia Bank Ltd., said: "As the 10-year U.S. Treasury yield returns to above 4%, the safe-haven property of the US dollar is even more apparent, so it is completely reasonable for the US dollar to rise further against the yen. But if we see the US dollar to the yen as fast as it was in previous periods, then we may see a new round of foreign exchange intervention."
Japanese Finance Minister Shunichi Suzuki also warned investors of the possibility of re-intervention before attending the G20 ministerial meeting earlier this week, saying that if the exchange rate has excessive fluctuations, Japan will take necessary exchange rate measures. However, by this standard, at least for now, the Japanese government does not seem to have to intervene again. The volatility of the U.S. dollar against the Japanese yen in the past week has dropped to its lowest level since March.
The latest non-farm employment data released last week made the market bet that Fed continue to raise interest rates sharply. Later this week, the United States will also release the latest September inflation data. Yoshio Iguchi said: "The new CPI data may provide a catalyst for the next trend of the US dollar against the yen, but before that, traders will not build positions in large quantities."
10-year Japanese Treasury bonds have not been traded for three consecutive days
not only fell below an important point, but the Japanese Treasury bond market is also facing new liquidity pressure: the 10-year Japanese Treasury bonds have not been traded for three consecutive days, the first time since 1999.
Under the YCC policy of the Bank of Japan, the Bank of Japan became the largest buyer of Japanese government bonds, causing the gradual failure of the Japanese government bond market and exacerbating the liquidity problem of the government bond market. According to Bloomberg , the Japanese Government Securities Liquidity Index has reached its worst level in more than a decade. "Investors are currently lacking the motivation to buy 10-year Japanese bonds, whether for spread arbitrage or for trading purposes.Because the Bank of Japan sets a target yield rate that makes the price of 10-year Japanese bonds higher than other maturity Treasury bonds, it is difficult for investors to hold 10-year Japanese bonds for a long time. "He added: "YCC also limits the downward space of 10-year Japanese bond yields, resulting in almost no price fluctuations on 10-year Japanese bonds, making it impossible for short-term traders to make profits through single-day trading. ”
In addition, while the Bank of England increased its bond purchases yesterday, it also warned the market that intervention was temporary, and pension funds only have three days left to adjust their position , which also disturbed the global bond market. Tsuyoshi, senior analyst at NLI Research Institute Ueno said that the untraded Japanese Treasury bonds were partly dragged down by turmoil in the global bond market.
However, some investors expect Japanese Treasury bond yields to eventually rise, as the Federal Reserve will continue to increase its currency tightening efforts, putting greater pressure on the Bank of Japan. Bloomberg data shows that the 10-year yen swap rate, the favorite international fund , has risen by more than 0.50%, more than double the 0.25% yield upper limit set by the Bank of Japan, indicating that some traders are betting on the Bank of Japan will eventually have to adjust the monetary policy . Ueno said that the continued depreciation of the yen has led to higher inflation pressure in Japan, and the market speculated that the Bank of Japan might have to adjust its monetary policy.
