rose above a 32-year high of 1:150 last week, the US dollar and the Japanese yen dived past 400 points in the morning of the 24th. The market generally believes that this is caused by the intervention of the Bank of Japan.
is also attracting attention as well as foreign exchange intervention. After the yen is weak, volatility intensifies and the 10-year Japanese Treasury bond yield has once again risen above the Bank of Japan's target, will the Bank of Japan have to give up the impact of yield curve control (YCC) and the Bank of Japan's policy shift?
BoN has interfered in the foreign exchange market again?
Yesterday (October 24), the US dollar against the Japanese yen plunged more than 400 points in the short term, hitting a new low of 1:145.48 in the past two weeks. Market insiders said that the sudden decline in the US dollar against the yen in the morning may be triggered by the re-intervention of Japanese authorities. However, Japanese foreign exchange officials remained silent about this and refused to express whether the authorities interfered in the foreign exchange market to support the yen. As of press time, the US dollar against the Japanese yen slightly rebounded to around 1:148.60.
Last week, the US dollar against the Japanese yen exchange rate fell below the 1:150 mark, hitting a new low since 1990. 1:150 is the psychological point that many analysts have expected to intervene again by the Japanese authorities.
In fact, during the New York trading session last Friday, the US dollar against the Japanese yen also quickly fell by about 580 points next time, falling from a more than 32-year high of 1:151.94 to around 1:146.16, and finally closed at around 1:147.60.
For the sharp fluctuations in the US dollar against the Japanese yen for two consecutive trading days, some analysts believe that it was caused by the intervention of the Japanese authorities. Japanese media also quoted a source last Saturday as saying that the Japanese government and the central bank of intervened in the foreign exchange market by purchasing yen and selling US dollars. "I think it's caused by intervention. We've seen a lot of dollar selling, and the yen jumped almost straight and the bears are squeezed." Mazen Issa, senior foreign exchange strategist at TD Securities, also said: "Many investors have been paying attention to the 150 mark before, using it as a key level that may trigger intervention. It's obvious that the Japanese Ministry of Finance is selling the US dollar to buy the yen, and they are trying to firmly defend the Bank of Japan's over loose monetary policy. He added: "Earlier last week, the Japanese authorities allowed the US dollar to rise above 150, basically reaching 152." They then entered the market at a very low liquidity time, which seemed to bring as much pain to speculators as possible. "
The Japanese Ministry of Finance has not commented on the speculation of the market and media. The analysis article of the financial website Forexlive on Monday pointed out that Japan had absolutely intervened on the morning of the 24th. The Japanese Ministry of Finance has a habit of neither confirming nor denying intervention. But when the market is obvious, the market no longer needs an official statement. Just now, the US dollar suddenly fell by more than 400 points against the yen. If the Japanese authorities may try to force the yen to end the weakness, this wave of market can be seen as It sets the tone for the trend in the next few days.
Bank of Japan Governor Kuroda Haruhiko Previously stated that the Bank of Japan must closely monitor the impact of the financial and foreign exchange market trends on the domestic economy and prices. Japanese Finance Minister Masato Kanda did not comment on the intervention actions on the morning of the 24th, but said, "Monthly intervention data will be released at the end of the month. Our position has not changed. The excessive weakness of the yen will be more harmful than good. We will 24 hours a day for 7 days this week. The market will be monitored around the clock and may take appropriate responses to excessive and disorderly fluctuations in the foreign exchange market at any time."
Japanese Finance Minister Shun Suzuki also declined to comment on whether to interfere with foreign exchange, but also said, "We are currently trying to fight against speculators in the market and will take necessary responses as needed. We will absolutely not tolerate excessive exchange rate changes based on speculation and will continue to monitor the foreign exchange market with a high sense of urgency."
Will the Bank of Japan give up YCC?
. What is implicitly implicit in the Japanese government's intervention in foreign exchange is the Bank of Japan's attitude towards YCC. As the market has always emphasized, supporting the yen and continuing to maintain quantitative easing policies are two goals that cannot be achieved at the same time. To ensure that one of them must give up the other to a certain extent.
Last week, facing the pressure of the yen depreciation, the Bank of Japan "will insist on doing its own thing" to adhere to the YCC policy.After the 10-year Japanese Treasury bond yield rose above the 0.25% policy range ceiling last Wednesday, the Bank of Japan had to announce a new temporary bond purchase plan on Thursday, the first temporary bond purchase since the fourth quarter bond purchase plan was released.
Masayuki Koguchi, general manager of fixed income investment department of Mitsubishi UFAN International Asset Management Co., Ltd., said: "The pressure on the rise of Japanese bond yields is very high, and the Bank of Japan's temporary bond purchases cannot prevent the yield from continuing to rise. The continued rise of yields (bonds continue to fall) further hit investors' demand for bonds, and the entire Japanese bond market is in a vicious cycle. At the same time, the weak yen will also push up Japan's inflation, which is another reason for the sell-off of bonds."
This Friday (October 28), the Bank of Japan will release its interest rate resolution and outlook report, and then Kuroda Haruhiko will hold an monetary policy press conference. Data from the Japanese Ministry of Internal Affairs last Friday showed that Japan's CPI (excluding the impact of tax increases) rose by 3% year-on-year in September, 2.8% higher than the previous value, the first time since 1991. However, market participants predict that rising inflation is still unlikely to push the Bank of Japan to withdraw from ultra-loose monetary policy. Even if inflation spreads outside the energy sector, Haruhiko Kuroda may still say that he needs to see stronger wage increases before exiting monetary easing. But at the same time, although market participants expect that the Bank of Japan will not give up its YCC policy before the expiration of Kuroda's term in April next year, they have also begun to worry that the accelerated depreciation of the yen and the intensified turmoil will make it increasingly difficult for the Bank of Japan to maintain YCC. Once the Bank of Japan abandons YCC without warning, its impact on the global market will be even more severe than the recent turmoil in the UK bond market.
Former economist at Goldman Sachs Group and chairman of Northern Grittstone, the chairman of Northern Grittstone, said: "Given the size of the YCC framework, the current yield level of Japanese Treasury bonds is at a low level and the weak yen, the Bank of Japan suddenly abandons YCC, which may cause great damage both domestically and globally. If handled improperly, it may bring a greater global impact than the recent chaos in the UK." Arjun Vij, portfolio manager of JPMorgan Asset Management, said that last year, Australia abandoned the yield curve control framework due to a sharp sell-off in Treasury bonds, strengthening the confidence of the "bond market vigilante" to find more goals. The most dramatic situation for the market is that the Bank of Japan will abandon the YCC framework without any warning, allowing 10-year Japanese bond yields to float freely, while limiting policies to the limit of short-term interest rates, which will lead to a 10-year benchmark day bond yield rising by about 50 basis points. The most serious macroeconomic impact is that global investors will reprice the premium for global long-term treasury bonds.
UBS Analysts predict this month that bonds in the United States, Australia and France are most at risk, and if Japan abandons YCC, it will put Japanese stocks in a bear market and could drop US and European stocks by 10%. Even a slight adjustment within the YCC framework may trigger a market storm. UBS gave the reason that the Bank of Japan's sudden abandonment of YCC may accelerate the yen rebound, bringing additional impetus to the global bond market's selling and triggering a wave of funds returning to Japan from foreign assets such as U.S. Treasury bonds.
