Ran Xuedong
US dollar rose rapidly, other non-US currencies are falling sharply, some central banks chose to wait and see, while some central banks had to launch a war to defend their currency value, and the Bank of Japan belongs to the latter.
htmlOn October 21, the Bank of Japan secretly acted at night and hit the speculators in the yen head-on. On the same day, the yen fell to 151.94, a new low in 32 years, but it suddenly rose in the short term during the session, and the yen soared to 144.50. This sniper battle cost about US$30 billion. html On the morning of October 24, the Japanese yen-USD exchange rate fell to 149.71 again. Within a few minutes at 8:44 local time, the yen-USD exchange rate surged to 145.56, which is another exchange market intervention action of the Bank of Japan. In addition to the Bank of Japan's intervention in the yen on September 22, the Bank of Japan has been significantly intervened in the foreign exchange market three times.At present, after the latest intervention, the yen short sellers hovered around 147, but the market generally believes that the Bank of Japan will continue to intervene in the future, and the short sellers will not be willing to fail, but will continue.
At 22:00 Beijing time when the author wrote this article, the yen suddenly rose by 148.7880 intraday, with an appreciation of about 1% and is estimated to have begun again.
The market speculated that such abnormal trading behavior must have been taken by the Bank of Japan, and the Bank of Japan did not clearly announce this speculation in the market.
The Bank of Japan's intervention in the market this time has a characteristic, which is generally night intervention, with greater intensity, and is not announced or admitted afterwards. This is obviously done by the Bank of Japan to increase the mystery and deterrence of intervention, which is an unexpected effect on speculative funds.
Japanese Finance Minister Suzuki Shunichi once said that Japan is in a firm confrontation with speculators and cannot tolerate excessive fluctuations in the currency. After the intervention, Masato Kanda, a senior official of Japanese currency affairs, said: "I will not comment on whether the intervention has been made. As I said before, we will take appropriate measures for excessive actions, 24 hours a day, 365 days a year, 24 hours a day."
From the above, it can be seen that although the market believes that the central bank has taken action and knows that the central bank has 1.2 trillion US Treasury bonds, these huge funds can be used as a rich weapon to deal with short sellers, short sellers can still continue to attack the yen and do not believe that the Bank of Japan will definitely win.
The Bank of Japan's shy defense of the yen exchange rate is not necessarily good. Although it has unexpected effects, the Bank of Japan's failure to announce the high-profile defense of the yen exchange rate means that its attitude towards the yen exchange rate is concealed. Perhaps it is because of the inconsistent internal opinions, perhaps it is because it is not confident, or it may be because it is optimistic. Why do
say so? Inflation in the United States has reached a new high in 40 years this year, employment and prices are in full swing. Fed must suppress inflation through interest rate hikes , which has led to the US dollar index continuing to rise by more than 114 points to reach a new high in 20 years.
Due to different economic cycles, Japan's economy has been in deflation. Japan's inflation in September this year has exceeded 3%. Excluding fresh foods with high volatility, the core CPI index, including energy, also rose 3% year-on-year, and higher than the increase of 2.8% in August.
However, Japan's inflation level is mainly due to the imported inflation of the rising prices of commodities such as international energy and food. The Bank of Japan firmly believes that the rise in inflation is not caused by economic recovery. One evidence is that the wage level of workers is still hovering at a low level.
Because prices in Japan have risen moderately this year, the Japanese government and enterprises are also increasing their wages as much as possible. According to statistics from the Japan Federation of Trade Unions, the average salary increase rate of labor-management negotiations in spring 2022, including base increase and regular salary increase, reached 2.07%, an increase of 0.29 percentage points year-on-year.
However, these increases are still a drop in the bucket compared to prices. Data released by the Ministry of Health, Labor and Welfare in September showed that Japan's inflation-adjusted real wages of in July decreased by 1.3% year-on-year, down by four consecutive months.
The yen against the US dollar has dropped sharply by 23% this year. If converted at the exchange rate in September, the average wage of Japanese workers in the past two years has been 40% lower than in 2012, which narrowed the salary gap with emerging Asian countries, and Japan's construction and nursing industries have also become difficult to hire the workers they need. This wage level has greatly lost its appeal to the labor force in China and Southeast Asia.
The reason why the Bank of Japan maintains the ultra-low interest rate monetary policy is to see a substantial increase in wages. Only the rise in wages is what the Bank of Japan hopes to see, and only then can its exchange rate policy be changed and truly curb the depreciation of the yen.
This is the reason why the market does not believe in the Bank of Japan. Although the central bank can still blow up short positions in the short term, the market believes that Japan's loose policy will continue, the ultra-low yield curve will still be maintained, the Bank of Japan cannot tighten its monetary policy, and the depreciation of the yen against the US dollar will continue. Then the central bank will make a comeback after briefly repelling the short positions and continue to short the US dollar.
Historically, the Bank of Japan interfered in the yen exchange rate twice, from 1991-1992 and 1997-1998 respectively. At that time, the Bank of Japan's intervention in the depreciation of the yen was between 127 and 132. However, in 2002, the US dollar against the Japanese yen once hit 135, but Japan did not interfere.
This time, the market believes that the Bank of Japan alone cannot stabilize the yen exchange rate and must cooperate with the United States to intervene, but this must be reached by Japan and the United States, which requires approval from the US government.
The economic cycle of the yen is similar to that of the RMB. This year, the RMB has fallen by more than 16% against the US dollar and has fallen by more than 7.33. The US dollar has not risen significantly recently, but the RMB has fallen by amplified, and the short-selling forces have increased significantly. The central bank has warned the market many times, indicating its determination to maintain the stability of the RMB exchange rate .
In my opinion, the Bank of Japan's intervention in exchange rates is a small fight, with extremely high costs and little results, which also damages the credibility of the central bank. This time, the Bank of Japan's intervention in Japan's exchange rate operation is of certain reference significance.
