In the afternoon of October 20, Beijing time, the US dollar continued to rise against the Japanese yen, breaking the 150 mark for the first time since 1990. It is worth noting that morning of the same day, the Bank of Japan launched an emergency bond purchase operation to strive

Reporter of the Economic Business: Cai Ding Reporter of the Economic Business Business: Lan Suying

In the afternoon of October 20, Beijing time, the US dollar continued to rise against the Japanese yen, breaking the 150 (i.e., 1 US dollar to 150 yen) mark for the first time since 1990.

It is worth noting that morning of the same day, the Bank of Japan launched an emergency bond purchase operation to strive to support the price of Japanese government bonds. However, judging from the trend of Japan's Treasury bond yields after the news was released, this operation did not work significantly.

Japan's largest financial institution - Mitsubishi UFAN Financial Group Senior foreign exchange analyst Lee Hardman said in a comment email to a reporter from " Daily Economic News ", "Currently, the yen is being dragged down by the pressure of rising returns in overseas markets (treasury bonds). The 10-year U.S. bonds yield exceeded 4.1% on the 19th, hitting a new high since 2008, because market participants still expect Fed to take more aggressive tightening measures. The domestic interest rate market is currently expected to raise interest rates to 5% next year, and will conduct two more 75 basis points hikes in by the end of this year. "

Affected by the continued expansion of the interest rate spread of in the United States and Japan, the exchange rate of the US dollar against the Japanese yen broke the 150 mark on October 20, the first time since 1990. Data shows that as of October 20, the yen has fallen against the US dollar for 12 consecutive trading days, and has continued to hit a new low in 32 years for 12 consecutive trading days.

USD 0 against the Japanese yen today broke through the 150 mark (Picture source: tradingview)

On the morning of the 20th, the Bank of Japan launched an emergency bond purchase operation to support the price of Japanese government bonds.

According to Reuters , according to the plan, Bank of Japan will purchase a total of 250 billion yen (about 1.67 billion US dollars) of government bonds, including 100 billion yen of 10-25-year Japanese government bonds, 50 billion yen of 25-year Japanese government bonds, and 100 billion yen of 5-10-year Japanese government bonds.

This is the first non-routine bond purchase since the Bank of Japan announced its fourth quarter bond purchase plan last month.

However, after the news was released, Japan's treasury bond yields continued to rise, with Japan's 5-year and 20-year bond yields hitting new highs since 2015.

Reuters reported that in the context of central banks around the world tightening their monetary policy to curb soaring inflation, the Bank of Japan's ultra-loose monetary policy is regarded as "outlier". At present, the bank is still focusing on supporting the fragile Japanese economy.

In addition, the widening monetary policy differences between the United States and Japan and the interest rate spread have also led to a sharp depreciation of the yen against the US dollar this year. However, as of now, the Bank of Japan has shown no sign of a shift in monetary policy. Japanese policymakers have previously stressed the need to maintain extremely loose policies due to the fragile economic recovery, weak domestic demand and a large number of imported risks from overseas.

Today's emergency bond purchase plan shows that the bank is still continuing its bond purchase plan and its long-term "yield curve control (YCC)" policy, which aims to maintain Japan's 10-year treasury bond yield at around 0%.

Reuters reported that the emergency bond purchase plan highlights the dilemma facing the Japanese government at present - trying to curb the unwelcome yen devaluation and avoid interest rate hikes, which could undermine Japan's fragile economic recovery. Most strategists currently expect the Bank of Japan to continue to maintain its ultra-low interest rate policy at its policy meeting on October 28, but some analysts said the Bank of Japan may need to abandon its YCC policy.

Fed's tightening expectations exacerbate pressure on the yen

In addition to the Bank of Japan's emergency bond purchase action, Japanese officials are also actively "speaking" to defend the exchange rate .

Finance Minister Shunichi Suzuki 20th again issued a verbal warning. He told the Japanese parliament, "The rapid and one-sided depreciation of the yen in the near future is not advisable. We must not tolerate excessive fluctuations caused by speculative trading. We will continue to take appropriate measures to prevent excessive fluctuations (of the yen), while paying attention to the development of the foreign exchange market with a strong sense of urgency."

"Daily Economic News" reporter noticed that this is the warning issued by the Japanese authorities for three consecutive days.Reuters quoted local media reports that Japanese authorities reiterated their warning of a sharp depreciation of the yen on October 19, and Finance Minister Shunichi Suzuki said he was "cautiously" increasing the frequency of checking exchange rates. At the same time, according to the Japanese news agency, Shunichi Suzuki said that the Japanese government will make "appropriate response" in the foreign exchange market based on existing policies. He also said that the authorities can intervene in the foreign exchange market without any announcement.

reporters found that since early September this year, Japanese authorities have issued verbal warnings about the decline in the yen almost every day. As early as April this year, Shunichi Suzuki admitted for the first time that the weaker yen was not good for the Japanese economy, when the US dollar hovered at the level of 126 against the yen. However, with the sharp weakening of the yen, the US dollar has appreciated by nearly 30% over the year.

Policymakers once believed that Japan's stronger yen would have an impact on it, but now they are worried that the sharp depreciation of the yen is pushing up the already high cost of commodity imports, squeezing household spending and disrupting business plans.

Last month, the Japanese authorities used 2.8 trillion yen (about 18.81 billion US dollars) to interfere in the foreign exchange market (i.e., sell US dollars and buy yen), which is the first time since 1998 that the authorities have taken action to support the yen in this way.

The largest financial institution in Japan - Lee, senior foreign exchange analyst at Mitsubishi UFAN Financial Group Hardman said in a comment email to a reporter from the Daily Economic News, "During today's Asian trading period, the US dollar exchange rate remained at a high level. On the evening of the 19th, Beijing time, the US dollar exchange rate rebounded as US bond yields climbed. In the past week, the US dollar against the Japanese yen was the most obvious, approaching the level of 150. During the five months from March to August 1990, the US dollar against the Japanese yen was traded above the 150 level. Currently, the yen is being dragged down by the pressure of rising yields in overseas markets (treasury bonds). The 10-year US bond yield broke through 4.1% on the 19th, a new high since 2008, because market participants still expect the Federal Reserve to take more aggressive tightening measures. The U.S. interest rate market is currently expected to raise interest rates to 5% next year, and will conduct two more 75 basis points rate hikes by the end of this year. The market has almost completely digested this expectation. "

" Before that, the United States and other major economies have released more inflation data that disappoints the market in recent days. For example, data released on the 19th showed that inflation in the UK and Canada rose unexpectedly again in September, further reducing the market's expectations of inflation peaking. Since then, the interest rate market price in Canada shows that the possibility of the central bank raising interest rates by 75 basis points again at the next policy meeting on October 26 is more than 50%. "Lee Hardman added.

Daily Economic News