The United States "hands-on" against Japan! What's going on? Fumio Kishida's latest statement......

National Business Daily

2024-06-22 09:37Published on the official account of Sichuan Daily Economic News

Edited by: Du Yu

On June 20, local time, the semi-annual monetary report released by the U.S. Treasury Department showed that Japan is transparent in foreign exchange intervention; Add Japan to the foreign exchange "watch list". This has directly aroused great concern in the market, and the market speculates that the United States may have been dissatisfied with the direct intervention of the Japanese authorities in the foreign exchange market.

According to brokerage China, Japan's Vice Minister of Finance Mato Kanda responded on June 21 that the U.S. exchange rate report did not regard Japan's actions as problematic, and intervening in the foreign exchange market does not mean changing the underlying trend of the exchange rate.

It is reported that the U.S. Treasury Department first established the "Exchange Rate Manipulation Monitoring List" in April 2016, and the current criteria are as follows:

First, the economy has a trade surplus of more than $15 billion with the United States;

Second, the economy's global current account surplus exceeds 3% of gross domestic product (GDP);

Third, the economy has continued to unilaterally intervene in the exchange rate market, and the country's net foreign currency purchases continue to exceed 2% of the country's GDP.

Economies that meet two of these criteria are typically placed on the U.S. Treasury Department's "currency manipulation watch list."

If a country meets all three criteria, it will be classified by the United States as an economy in need of "enhanced analysis", which is equivalent to being classified as a "currency manipulator" and may face relevant sanctions.

The U.S. Treasury Department, in its latest semi-annual monetary report, did not label any country as a "currency manipulator."

In its latest report, the U.S. Treasury Department took aim at Japan's large bilateral trade and current account surpluses, and did not warn of the Japanese authorities' intervention in the yen's exchange rate.

"The Treasury's expectation is that in large, freely traded foreign exchange markets, intervention will only take place in very exceptional circumstances and with appropriate prior consultation," the Treasury Department wrote in its latest semi-annual report on foreign exchange transactions. Japan is transparent when it comes to foreign exchange operations. ”

The yen plummeted

According to CCTV News, the Japan Broadcasting Association reported on the morning of June 21 local time that in the Tokyo foreign exchange market that day, the yen exchange rate against the US dollar once fell below the level of 159 yen to 1 US dollar. According to the report, the yen depreciated in anticipation of the postponement of the Fed's interest rate cut.

Image source: CCTV news video screenshot

On April 29 this year, in the international foreign exchange market, the exchange rate of the yen against the US dollar briefly fell below 160 yen to 1 dollar, which was the first time since April 1990 that this level was touched.

So far, the yen has fallen for seven consecutive days, the longest losing streak since March, and the yen has fallen by more than 12% against the dollar this year, making it one of the worst-performing major currencies.

This directly increases the risk of intervention by the Japanese authorities. Kanda reiterates that if excessive foreign exchange volatility is detected, appropriate action will be taken as necessary.

As for the reasons for the sharp depreciation of the yen, market participants believe that the continued widening of the interest rate differential between Japan and the United States is a key factor that leads to pressure on the yen exchange rate. The Fed has kept interest rates at 5.25%-5.50% for an extended period of time, the highest level in 20 years, while Japan's short-term interest rate is only 0.1%.

Barclays strategists, led by Shinichiro Kadota, said in a note that as long as the U.S.-Japan interest rate differential exceeds a certain threshold, even if the spread narrows, the yen sell-off triggered by the carry trade may not decrease. Strategists expect the USD/JPY pair to trade around 160 by the end of the year.

In early June, Japan's finance minister, Shunichi Suzuki, publicly stated that while officials would continue to closely monitor trends in the exchange rate, intervention should be limited. This statement reflects a more prudent and restrained attitude of the Japanese authorities in dealing with exchange rate issues.

Despite the sharp depreciation, the yen is currently experiencing a sharp sell-off.

According to the Ministry of Finance's external and internal securities sales contracts (according to the statistics of designated reporting agencies), in May this year, the net purchase of overseas investment by investment trust companies and asset management companies in Japan reached 1.3719 trillion yen, setting a new record for a single month.

According to the data, in January ~ May this year, the net purchase of overseas investment by domestic investment trust management companies and other companies exceeded 5.6 trillion yen, which has exceeded the whole of 2023. If this rate is maintained, the net purchase for the whole of 2024 will be 13 trillion yen, the highest for the whole year.

Fumio Kishida: Japan will promote the formation of a growth economy

Image source: Xinhua News Agency (data map)

According to CCTV News, on the 21st local time, Japanese Prime Minister Fumio Kishida held a press conference to answer questions about the content reached by the current Diet and future governance goals.

Fumio Kishida said that he will carry out political reforms and concretize as soon as possible, including strengthening the transparency of policy activity expenses. In addition, reconstruction work related to the Noto Peninsula earthquake will continue, and the government will send a permanent team to support it and strengthen the disaster prevention system.

Fumio Kishida said that the Japanese economy is currently at a critical stage, and will promote the formation of a growth economy, and will vigorously promote the actual rise of people's wages this autumn. The wage adjustment has been completed this spring, and the results will be gradually felt. In the future, we will increase support for small and medium-sized enterprises.

In addition, a two-stage policy will be implemented to deal with high prices. In the first phase, time-efficient energy price subsidies will be implemented as soon as possible, and in the second phase, financial subsidies will be provided to low-income people, as well as more detailed price measures based on local conditions.

Yen weakness The Bank of Japan is under increasing pressure to raise interest rates

According to the Economic Information Daily, the Bank of Japan announced on June 14 that it would keep its policy rate target unchanged between 0 and 0.1% after its monetary policy meeting.

In the announcement, the Bank of Japan said that it will continue to implement the long-term government bond purchase policy established in March. Subsequently, in order to liberalize the long-term interest rate formation mechanism in the financial market, the central bank will reduce government bond purchases, and at the monetary policy meeting held in July, it will decide on a specific reduction in bond purchases for the next one to two years.

The BOJ's current monthly bond purchases are about 6 trillion yen ($38 billion). Over the past decade, large-scale bond purchases have been marked by loose monetary policy in order to achieve the inflation target.

Bank of Japan Governor Kazuo Ueda said at a press conference on June 14: "Treasury bond purchases will not be reduced just a little bit, but will be on a corresponding scale." "The Bank of Japan will consult market participants on the tapering program.

Kazuo Ueda said on the 18th when talking about interest rate policy that the Bank of Japan "may raise interest rates in July based on data", showing that it is paying close attention to inflation dynamics and is ready to adjust policy in a timely manner. He reiterated that raising the short-term policy rate would only be considered if underlying inflation accelerates towards target on a solid footing. Some analysts pointed out that in the context of the continued depreciation of the yen, inflation has been promoted, and the pressure on the Bank of Japan to raise interest rates again is increasing.

According to Kyodo News, the Bank of Japan holds about 600 trillion yen in bonds, accounting for more than half of the outstanding government debt. For years, the Bank of Japan's massive government bond purchase program has helped keep long-term bond yields to a minimum, but its sheer size has led to market-distorting criticism.

Kazuo Ueda acknowledged that it would take years to bring bond holdings down to "ideal" levels, and that a plan to reduce government bond purchases would help remove policy uncertainty. He said that even if the Bank of Japan starts to reduce the size of government bond purchases, the impact of loose monetary policy will still be there.

The Bank of Japan has ended its negative interest rate and yield curve control policies and returned to its tradition of using short-term interest rates to guide monetary policy. The Bank of Japan raised its policy rate from minus 0.1% to a range of 0 to 0.1% in March, while deciding to end its yield curve control policy and pledging to continue to maintain accommodative monetary conditions, including through government bond purchases.

According to Xinhua News Agency, Japanese media and experts generally believe that the depreciation trend of the yen is likely to continue, putting the Japanese economy under obvious pressure, which is not conducive to Japan's exit from deflation, and at the same time bringing pressure to Japan's retail, energy, aviation and other industries, and increasing the burden on enterprises that rely on imported raw materials.

Daily Economic News, CCTV News, Xinhua News Agency, Economic Information Daily, Brokerage China

National Business Daily

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