Is the yen going to collapse this time? Judging from the recent developments, a series of actions by the Bank of Japan have made the market have such speculation. They kept interest rates unchanged, while some subtle adjustments to the economy felt unusual. In particular, the fine-tuning of inflation and monetary policy seems to imply something.
The event passed
Speaking of the Bank of Japan, the name is not an unfamiliar character in the financial circle. Their every move can always make waves in the global financial market. Recently, they have made some decisions that have surprised the market.
First of all, it is worth mentioning that despite the signs of economic weakness in parts of Japan, the Bank of Japan said in a recent statement that the overall economy is showing a modest recovery. As soon as this news came out, the already tense market sentiment seemed to be eased a little. But this is only a superficial calm.
Looking deeper, the BOJ's attitude actually hides many details. They mentioned the issue of price increases due to the suspension of shipments by some automakers. This not only affects the automotive industry, but also indirectly pushes up the costs of other related industries. More critically, the continued rise in service prices reflects the fact that rising wages are beginning to have an impact on the economy as a whole. These are subtle signals that inflationary pressures are building.
In terms of inflation data, the information provided by the Bank of Japan is even more eye-catching. They noted that, despite the above problems, the increase in the consumer price index remained between 2.0 and 2.5 percent. In the eyes of economists, this figure is neither too high nor too low, but it is enough to keep people alarmed.
What follows is probably the most shocking part of the whole event. Despite the steady inflation data, the Bank of Japan suddenly announced that they would reduce the size of their government bond purchases. As soon as this news came out, it was like a bombshell thrown into the calm water of a lake, and the market immediately reacted strongly.
However, the Bank of Japan did not immediately give a specific size and timetable for the reduction, which made things even more confusing. Market analysts and investors are starting to speculate whether this means that the Bank of Japan is satisfied with the current level of inflation, or that they are simply adopting a more cautious strategy.
And the market's reaction was almost immediate. The exchange rate of the yen against major currencies began to depreciate rapidly. The dollar briefly broke through the 158 mark against the yen for the first time since April 29. At the same time, the pound also climbed to 201.45 against the yen, a 16-year high. It can be said that the weakening of the yen has become an almost inevitable trend.
However, while the market was still scrambling for the depreciation of the yen, the words of the governor of the Bank of Japan, Kazuo Ueda, caused new fluctuations in market sentiment. In a speech, Kazuo Ueda said that if prices continue to rise towards the target, the Bank of Japan will not rule out raising interest rates. This statement undoubtedly brought new hope to the market, and also gave a glimmer of hope to investors who expect the yen to stabilize or even appreciate.
More remarkably, Kazuo Ueda also revealed that the Bank of Japan may adjust short-term interest rates at its July monetary policy meeting and decide whether to reduce the scale of government bond purchases at the meeting. He even hinted at a possible rate hike in July if economic data is in line with expectations.
This series of actions and remarks has made the market full of expectations and speculation about the next move of the Bank of Japan. The size of long-term Japanese government bonds held by the Bank of Japan is also a key point. As of the end of last month, the figure was about 593 trillion yen, accounting for almost half of the size of Japan's government bond market.
In March, the Bank of Japan announced the end of its negative interest rate policy and decided to continue buying government bonds at about the same pace, but abandoned its yield curve control program. This decision already attracted a lot of attention in the market at the time, as it marked a major shift in the BOJ's monetary policy, moving towards normalization. And this time, if the Bank of Japan does decide to taper its bond purchases, a surge in government bond yields is almost inevitable.
In this complex and intertwining set of economic policies and market reactions, the comments of Alvin Tan, a senior analyst at Royal Bank of Canada, are perhaps the most representative of the general view of the market. He noted that this dovish attitude from the Bank of Japan, as well as their decision to postpone the detailed announcement of the tapering of the bond-buying program, suggest that the yen will still face downward pressure in the near term.
Netizen A: "Japan is moving towards the rhythm of monetary independence!" Finally, it's no longer the central bank that keeps releasing water. I'd like to see the yen back strong, but this time we have to see the right time. ”
Netizen B: "This operation is a bit hanging, and suddenly said that it would reduce bond purchases, and the market reaction was so big, I feel that the Bank of Japan is gambling." Are they really sure they can control the consequences? I'm a little worried. ”
Netizen C: "Governor Ueda's face is changing faster than turning a book, the interest rate was negative before, and now he suddenly says that he may have to raise interest rates." This kind of fast and slow rhythm is something that small retail investors like me can't understand. ”
Netizen D: "Seeing the yen fall so badly, travel enthusiasts like me are happy, and when the epidemic is over, hurry up and go to Japan to have a good time!" I hope that the yen will fall a little more, and buy and buy cheap bowls! ”
Netizen E: "I have to say that this wave of operations by the Bank of Japan is really worrying to watch." Inflation is not so easy to control once it starts to rise, and hopefully they can have a reasonable plan. ”
Netizen F: "I feel that the global economy is changing, and the Bank of Japan is doing this now, is it also adapting to the new global economic environment?" In these days, no one wants to be left behind. ”
Netizen G: "Haha, the market just likes roller coasters, and as soon as this news comes out today, it directly makes people's hearts beat faster." However, looking at the fluctuations of the yen, are the brothers who speculate on foreign exchange going to start working again? ”
Netizen H: "To be honest, whether the Bank of Japan can succeed this time, I think it depends on how the Fed operates." After all, this monetary policy is inseparable from the general environment of international influence. ”
Through the comments of these netizens, we can see that everyone has different views and expectations on the latest policy of the Bank of Japan and the future direction of the yen. Some are concerned that the BOJ's decision could create instability, while others are excited about possible travel opportunities. At the same time, there are also views that this is a move to adapt to changes in the global economy, reflecting the Bank of Japan's prediction and response to the future economic situation.
This diversity of views and lively discussions shows that the market is highly concerned about the uncertainty of the future and the central bank's policy. Although predicting the future is fraught with challenges, this lively discussion in the market undoubtedly provides us with more perspectives and reflections to better understand and respond to possible economic fluctuations.