The economic chess game behind the new low of the yen exchange rate
Against the backdrop of turmoil in global financial markets, the yen fell to a 38-year low of 160:1 against the dollar, becoming the spotlight on the global financial stage.
This is not only a numerical jump, but also a profound embodiment of the global economic power contest and national policy choices.
The divergence in monetary policy between the United States and Japan, especially the Fed's interest rate hike and Japan's insistence on accommodative policy, has exacerbated this trend.
Exchange rate changes have a wide range of effects, which are good for Japan's exports in the short term, but they also bury hidden dangers such as inflation and declining consumer confidence, forcing the government and the central bank to find a balance between stabilizing the exchange rate and supporting economic recovery.
The ripple effect of the yen's depreciation has spread to Asia and the world, raising fears of currency wars and trade tensions, highlighting the urgency of policy coordination among countries.
This incident is a warning that in a globalized economic system, the global implications of any single country's decision-making need to be taken into account.
The turbulent waves of the currency battlefield
Since 1986, the unprecedented weakness of the yen's exchange rate has gone beyond a single event to become a symbol of the heightened uncertainty of the global economy.
In a tight financial market, investors are extremely sensitive to risks, and the depreciation of the yen not only affects Asian currency markets, but also affects the stability of the global monetary system.
This dynamic has put pressure on neighboring countries to adjust their export strategies, and emerging market currencies have become more volatile, highlighting the need for international policy coordination.
As a result, global investors have adjusted their asset allocations to safe-haven instruments, emphasizing that the volatility of any major currency can trigger widespread repercussions in the context of global economic interconnection, requiring countries to adopt a more forward-looking and coordinated approach to risk management and cooperation.
Prediction collides with reality
The foresight of a well-known investor, Mr. Shiroyuki, who had accurately predicted that the Bank of Japan's exchange rate intervention would only temporarily slow down the yen's depreciation, would be difficult to change the overall situation.
This insight reveals the nature of market dynamics.
Why is the Bank of Japan's intervention limited? At the heart of this is a complex economic logic: the weakness of the domestic economy and its dependence on exports make it difficult to raise interest rates for fear of triggering deflation, while the global wave of interest rate hikes has exacerbated the pressure on capital outflows and weighed on the yen.
In addition, although the long-term ultra-loose monetary policy stimulates the economy, it also buries the risk of asset bubbles, limiting the room for policy maneuvering.
The perspective of the times not only clarifies the underlying reasons for the depreciation of the yen, but also reflects the dilemma between the limitations of a single monetary policy and the policy choices of the central bank in the context of global economic integration, and provides far-reaching thinking for the financial market.
The central bank's dilemma
In the face of the sharp depreciation of the yen, the Bank of Japan is in a dilemma: although interest rate hikes can directly hit the currency depreciation, they may plunge the economy back into deflation, and the intervention power of the huge US Treasury bonds is ineffective in the global capital flood, and it can only be effective occasionally, lacking a long-term mechanism.
This series of challenges essentially highlights the deep-seated contradictions in the implementation of monetary policy, which has become more difficult than ever in balancing the delicate balance between maintaining currency value, promoting growth, and guarding against risks.
In the context of global economic integration, the traditional policy tools of a single country are limited, requiring policymakers to think creatively to adapt to the complex and volatile financial environment.
The ripple effect of Asian currencies
The yen's volatility toppled dominoes and triggered a series of reactions in Asian currency markets.
The Indian rupee fell to a new low, followed by the offshore renminbi breaking the 7.3 psychological mark, indicating that regional currency markets are experiencing unprecedented challenges.
This series of events has exacerbated inflationary pressures for import-dependent economies such as India and tested the response strategies of their respective central banks.
While currency depreciation is good for exports, it also brings problems such as higher import costs, higher inflation and volatile market confidence.
As a result, Asian central banks are seeking a delicate balance between maintaining exchange rate stability, controlling capital flows, and supporting economic growth, while strengthening regional cooperation to jointly respond to external shocks brought about by global uncertainty and a strong US dollar.
Policy choices: You can't have it both ways
Policymakers face a dilemma: exchange rate stability or asset price stability.
The former calls for monetary policy tightening and possible interest rate hikes, putting pressure on real estate and the stock market; The latter stimulates economic growth by cutting interest rates, but could accelerate currency depreciation and trigger inflation.
Finding a balance has become a huge challenge, requiring precise policy implementation, taking into account the internal and external economic environment, considering short-term and long-term interests, and comprehensively using a variety of policy tools to strive for stable economic development.
This decision-making process tests the wisdom and courage of policymakers and the country's ability to govern the economy.
Future outlook: Watch assets and expect a reversal
Times gives him a long-term perspective: in the short term, if asset prices can be stabilized, a temporary decline in the exchange rate may be acceptable, because healthy economic fundamentals will eventually support the value of the currency.
Conversely, if asset prices collapse, the long-term stability of the currency will also be in vain.
This insight reminds us to focus on the long-term goal of macroeconomic regulation, rather than just dwelling on short-term exchange rate fluctuations.
The collapse of the yen exchange rate is not just a story of Japan, it reflects the complexity and interconnectedness of economic policies on a global scale.
In this economic war without gunpowder, how to protect their own interests while maintaining the stability of the global economy will be the theme of continuous discussion in the coming period.