Source of this article: Times Finance Author: Yu Siyi
On October 21, the depreciation momentum of the Japanese yen against the US dollar was advanced, once exceeding 151.90 yen for 1 US dollar, hitting a new low of about 32 years since July 1990. Japanese authorities immediately warned the market, saying they would take decisive actions to combat the sharp fluctuations in the yen exchange rate caused by speculation.
According to the Nikkei News on October 21, the Bank of Japan intervened in the money market to support the yen.
After the intervention signal was released, the Japanese yen-USD exchange rate rebounded rapidly in a short period of time. At the close of the early morning of October 22, the US dollar fell below 150 against the yen, closing at 147.641, down 1.68%.
In fact, since the beginning of this year, the depreciation of the yen against the US dollar has been the largest since the record in 1972, and the international market is highly concerned about the yen exchange rate exceeding 150.
"The yen is an extremely special existence in the global monetary system. It is a historic event for the yen to break 150 against the US dollar." Chen Jia, a researcher at the Institute of Monetary Studies of Renmin University of China and an independent international strategy researcher, analyzed to Times Finance on October 21 that after the signing of the Plaza Agreement in Japan in 1985, the yen gradually decoupled from Japan's economy and trade, becoming a paradise for global asset hedging.
Economics professor Xing Yuqing, a professor of economics at the University of Japan's Policy Research University, also pointed out in an interview with Times Finance in Japan on October 21 that the depreciation of the yen is related to currency as an investment tool. Due to the Federal Reserve's interest rate hikes , the interest rate spread of US-Japan continues to widen, pushing the US dollar higher and the yen falls.
In Chen Jia's view, there are misunderstandings in the current view of the yen exchange rate breaking 150. Chen Jia said that the breakout of the yen by 150 cannot be regarded as a sign of the deterioration of the fundamentals of the Japanese economy, nor can it be considered that the yen fluctuation is a dereliction of duty by the Japanese foreign exchange market management authorities.
Xing Yuqing pointed out that overall, the depreciation of the yen is more beneficial than disadvantages to the Japanese economy. Although the depreciation of the yen has a bad impact on Japan's import of foreign energy, it is more conducive to Japan's exports and objectively leads to more consumption in the country.
"Japan's intervention in exchange rate is just a gesture to respond to the criticism of the opposition party in recent days. In fact, the foreign exchange reserves that the Japanese Ministry of Finance can use is very small compared with the trading volume of the foreign exchange market, which is not enough to affect the transactions in the foreign exchange market." Xing Yuqing pointed out that for the Bank of Japan, it will not aim to maintain exchange rate stability, but will always put economic recovery first.
Image source: Tukong Creative
Depreciation is more beneficial than disadvantages to the Japanese economy
On October 21, the yield on the US 10-year Treasury bond rose above 4.25% for the first time since 2008, and the yen fell below 150 against the US dollar.
Xing Yuqing pointed out that the current return rate of the US 10-year Treasury bond is between 4.1% and 4.25%, while Japan's 10-year Treasury bonds are below 0.1%, close to 0. As an investment tool, investors will invest in assets priced in US dollars, pushing up the US dollar index , and the yen will fall. The impact of the depreciation of
yen on inflation in Japan is obvious. According to Xinhua Finance , data released by the Japanese Ministry of Internal Affairs and Affairs on October 21 showed that Japan's core consumer price index (CPI) for fresh food removal in September was 102.9 after seasonal adjustment, up 3.0% year-on-year, exceeding 3% for the first time in the past eight years. If the impact of the increase in the consumption tax rate was not taken into account in 2014, the increase was the largest since August 1991. So far, Japan's CPI has increased year-on-year for 13 consecutive months.
"Eggs, cooking oil, and all kinds of ingredients are rising prices! Popular big brands such as LV and GUCCI are also rising prices." Ms. Zhang, who moved to Japan, complained to Times Finance on October 21.
Xing Yuqing analyzed that Japan is a country that needs import resources, such as natural gas , oil, coal, and even imported grain, mainly wheat, oil rapeseed . Under this circumstance, the import prices of raw materials or daily necessities will continue to rise, driving overall prices to rise.
Because the depreciation is related to the widening interest rate spread between the United States and Japan, in the outside world, most of the central bank in the world have stopped quantitative easing, and the Bank of Japan insists on the loose monetary policy of exceeding and directly contacts the yen to depreciate rapidly.
Faced with the complaints of the Japanese people about rising prices and not rising wages, on October 21, the Governor of the Bank of Japan, Kuroda Haruhiko , said, "We will continue to implement the current monetary policy , stabilize the achievement of the Bank of Japan's target, and continue to relax monetary policy to increase wages."
This is the second time Kuroda has made a statement in the past half month. On October 13, Kuroda emphasized: "We must continue to implement the loose monetary policy until we achieve the 2% target in a sustainable and stable manner."
Regarding the Bank of Japan's insistence on quantitative easing, Chen Jia pointed out that Abenomics is currently facing resistance and Japan's trade is deeply trapped in the deficit, the Bank of Japan is happy to see the depreciation of the yen. Japanese currency authorities hope to increase their investment by stimulating exports and driving the economy through objective weakness of the yen.
"The depreciation of the yen is beneficial to Japan's export companies, such as Japan's Toyota automobiles, Uniqlo clothing, Takeda Pharmaceutical sales and other companies, most of the sales are overseas." Xing Yuqing also believes that overall, the depreciation of the yen will not particularly harm the Japanese economy, because the strongest part of the Japanese economy is exports. It is a good thing for Japanese multinational companies that mainly focus on overseas markets and enhance their competitiveness.
Xing Yuqing also said that due to the depreciation of the yen, Japanese people will reduce their consumption overseas. In the past, Japanese families had to travel abroad once a year, but now they may choose to travel in China, increasing the demand for domestic products and services in Japan.
"It will also promote the return of Japanese companies. Now the global supply chain is adjusting. The Japanese government has always hoped that some Japanese companies will return. If the yen depreciates, investing in Japan should be lower." Xing Yuqing said.
As for the inflation caused by easing and depreciation, Japan chose to suppress it through fiscal subsidies. Xing Yuqing introduced that due to the increase in gasoline expenditure, Japan's current liter of gasoline is 170 yen, which is about 8.4 yuan at the current exchange rate. Because the Japanese government subsidized 42 yen for one liter of gasoline, the price of gasoline has been stable. In terms of electricity bills, the Japanese government will soon provide each company with a monthly electricity bill subsidy of 2,000 yen, and the Japanese government also uses fiscal subsidies to control the price of imported food.
Xing Yuqing further pointed out that the Japanese government and monetary authorities do not aim to stabilize the exchange rate, but to promote economic recovery as their goal, so they will not follow the example of the Federal Reserve's interest rate hike, which has led to the economic recovery being shut down.
Also, according to Kyodo News on the 321st, the Japanese government and the ruling coalition considered state spending more than 20 trillion yen (about 133.3 billion US dollars) to fund economic stimulus plans. Japan plans to obtain cabinet approval on October 28 to implement an economic stimulus spending package.
interferes in the exchange rate just posing stance
Although the Japanese government insists on loose monetary policy, the Japanese government intervenes in the exchange rate when the yen is rapidly depreciating.
On September 22, Federal Reserve announced the third rate hike of as scheduled, Bank of Japan continued to stick to negative interest rate . The yen once fell below the 145 mark, setting a lowest level since August 1998. As the yen exchange rate hit a new low, the Japanese government intervened for the first time since June 1998 by selling the US dollar and buying the yen. The yen rebounded to 141 on the same day.
The same scene also took place on October 21 - Japanese authorities warned the market to crack down on the sharp fluctuations in the yen exchange rate caused by speculation, and the exchange rate returned to below 150.
In fact, the market is not unfamiliar with the Japanese government's intervention in the exchange rate. In the 1990s, the Japanese government frequently conducted foreign exchange intervention operations.
Nomura Oriental International Research Report stated that the intervention of the Japanese monetary authorities in the yen exchange rate from 1991 to 2004 can usually be divided into three stages: "high frequency small amount" from April 1991 to May 1995, "low frequency large amount" from June 1995 to December 2002, and "high frequency large amount" from January 2003 to March 2004. Generally speaking, the exchange rate intervention of selling the yen is mostly the case, and the exchange rate intervention of buying the yen mainly occurred in two stages, 1991-1992 and 1997-1998.
What is the current decision-making logic of the Bank of Japan’s exchange rate intervention?
Xing Yuqing pointed out that Japan's foreign exchange reserves are under the responsibility of the Ministry of Finance. The Japanese Ministry of Finance entered the market at around 145 at the end of September 22 to buy the yen. The behavior of maintaining stability on the exchange rate for one or two days. "The Japanese Ministry of Finance can use very little money, which is drizzling compared to the number of foreign exchange transactions every day, and the effect of pure exchange rate intervention is limited."
According to Wall Street News , data shows that as of the end of August, Japan had US$1.17 trillion in foreign exchange reserves, while the average daily Japanese yen trading volume on the Tokyo Exchange was about US$479 billion. Their ratio is 2.4 times, compared with 1.4 times in April 1998.
In addition, according to data released by the Japanese Broadcasting Association (NHK), the Japanese Ministry of Finance on October 7, as of the end of September, Japan's foreign exchange reserves reached US$1.2380 trillion, a decrease of more than US$54 billion from the previous month, and a decline of two consecutive months, setting the largest single-month decrease since a record.
"Faced with attacks from domestic opposition, the Ministry of Finance needs to make a gesture, but it cannot stop this trend." Xing Yuqing said that looking forward to the future, the Japanese government will occasionally interfere in the exchange rate, but the effect is limited. In Xing Yuqing's view, this is not something that the central bank can control. The Bank of Japan's monetary policy is not aimed at exchange rate stability, but aimed at economic growth.
Xing Yuqing further pointed out that if the policy of easing is stopped in order to protect the exchange rate, it will hinder economic growth. Historically, in 1992, the UK gave up the interest rate hike policy and allowed the pound to depreciate, so as to increase the interest rate by more than 10%. After two months of maintenance, it gave up the interest rate hike policy and allowed the pound to depreciate. Because the rate hike is wrong, the UK economy further deteriorates. "Financial tycoon" Soros bet at the time that the Bank of England could not continue to maintain interest rates so high, and successfully shorted the pound.
Chen Jia also believes that although Japanese officials have recently released a lot of remarks about the yen maintaining stability, according to Kuroda's latest speech, the Bank of Japan will also adhere to its established policy and not follow the Federal Reserve's decision to raise interest rates. This continued adherence to loose monetary policy is precisely the Xiao Rules and Cao Sui, Japan's quantitative easing since Abenomics.
"Under this macro context, the Bank of Japan will neither learn from Bank of England in the short term to maintain the exchange rate repeatedly at the risk of losing credibility, nor will it rashly increase the purchase of bonds to damage the already fragile fiscal health." Chen Jia added.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-