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The yen has fallen below 160 against the dollar, and the situation looks quite dire. It's not just a change in numbers, it's a microcosm of the East Asian currency wars. The situation now is as if the United States is using Japan's savings to keep the dollar alive. As for Japan's possible "resistance", the United States also gently reminded Japan to put Japan on the observation list of currency manipulators. That also means that Japan's central mother has a sharp sword on her head, daring to intervene in the exchange rate strongly, and directly slap you in the face.
The United States issued a gentle warning
The yen's decline against the US dollar has continued to fall, falling below 160, which has become a hot topic in the financial markets.
It's not just a numbers game, it's a battle for money across East Asia.
Fundamentally, this is a way in which the United States has indirectly influenced the Japanese economy through its strong dollar policy.
The U.S. strong dollar policy has many benefits, such as reducing import costs and attracting global capital. This move undoubtedly makes the US dollar a safe haven for global investors.
Nonetheless, for Japan, which relies heavily on exports to drive its domestic economic prosperity, the impact of a strong dollar is a double-edged sword: it causes the prices of its products to rise in the international market, thereby weakening its dominant position in international competition.
However, in the process of persisting in implementing this strong dollar policy, the United States' attitude toward Japan can be described as unique and ingenious. Isn't it like they're putting Japan on the watch list of currency manipulators?
As soon as Japan tries to prop up the yen through market intervention, the United States may step in and give Japan an economic slap in the face to let them know who is the boss in the international financial system.
This seems to have cut off the Kishida government's way of intervening in the exchange rate.
This is undoubtedly a major blow to the Japanese economy.
Against this backdrop, the Japanese government and central bank will naturally not sit idly by.
In April, they tried to stabilize the yen exchange rate through market intervention, but none of their actions seemed to have the desired effect. To make matters worse, the United States has also placed Japan on the watch list of currency manipulators, which has undoubtedly brought more external pressure to Japan's monetary policy operations.
In this case, if the Bank of Japan intervenes strongly in the exchange rate, it is likely to be "hit" by the United States economically, not only economically, but also politically.
The Kishida government has very limited room to maneuver in this environment. The Fed is currently following a policy path of higher interest rates and a longer period of time, which will undoubtedly continue to support the strength of the dollar.
The Kishida government is faced with a tricky situation: unless the Fed's policy eases, the yen's depreciation trend is likely to continue.
This situation is not a small test for the Japanese economy.
The ruthless rout of the yen
In global financial markets, the power of the dollar has once again demonstrated its unparalleled dominance, and the continued depreciation of the yen has become a direct victim of this phenomenon.
The Fed's high interest rate policy has attracted a large amount of capital inflows into the United States, which not only maintains the strong performance of the dollar, but also indirectly puts enormous pressure on other economies, especially Japan.
At present, the performance of the US financial market can be said to be very impressive on a global scale. The value of the dollar has soared to a new high since the beginning of the year, and the performance of the US stock market has also been impressive.
However, despite this ostensibly prosperous situation, the yen's performance is deteriorating day by day. At one point, its exchange rate against the dollar plummeted to 160.87, far exceeding the level set by Japanese officials during their previous market interventions.
At the same time, the yen also hit an all-time low against the euro, falling to 171.80.
All this shows that despite the fact that the authorities are closely monitoring the dynamics of the foreign exchange market and will take measures if necessary, these efforts seem to have failed so far, despite the fact that the BOJ senior official Mato Kanda has stressed that the authorities are closely monitoring the dynamics of the foreign exchange market and will take measures if necessary.
Indeed, if the American people expect Japan to pay a heavy price in the short term in order to continue their economic lifeline, this undoubtedly reveals the depth of the predicament facing the United States today.
Since the Bank of Japan (BOJ) used a record 9.8 trillion yen in tough measures to stabilize its currency exchange rate, the performance of the yen has not shown any signs of improvement.
Many industry experts generally hold the view that even further market intervention may not help.
In this context, Japan's financial system and economic situation appear even more precarious.
Most worryingly, some of Japan's largest banks, such as the Central Treasury Bank of Agriculture and Forestry, have already experienced large-scale losses, which are even three times larger than during the subprime mortgage crisis.
The impact of this financial shock is not limited to financial markets, but at a deeper level, the continued depreciation of the yen has begun to seriously affect the lives of ordinary people.
As a country that relies on imports, the cost of living for the Japanese people is rising.
The question now is, what else can the Kishida administration do to save itself in the face of unprecedented economic and financial pressures?
There aren't many options in Japan
Japan's economic pressure is really not small these days. Since the beginning of this year, the interest rate gap between the United States and Japan has only widened, and the Fed's hawkish policy has pushed the dollar to a high level, while Japan's interest rates are still pitifully low, which is a huge blow to the yen.
At the beginning of the year, there was some hope that the United States might start cutting interest rates, that global monetary policy might be loosened, and that Japan would finally be able to get out of ultra-low interest rates.
But the reality is that the U.S. economy is unexpectedly strong, inflation remains high, the Fed's attitude is hard-hitting, the expectation of interest rate cuts has been completely disappointed, and the Bank of Japan's interest rate hike can only be described as a symbolic small adjustment.
As a result, the yen has become less and less important in the global currency market, and its value has been declining. Japan's economic model, which was originally dependent on external trade, has undoubtedly increased the pressure on the domestic and foreign currencies due to the decline in the currency exchange rate.
The price of imported raw materials has risen because of the decline in the exchange rate, but the foreign exchange for export products has decreased because of the fall, which is a double blow to Japan's economy.
Analysts say that the yen's stability depends on the trade surplus. Now, as soon as the yen depreciates, imports increase, exports decrease, and the trade deficit increases.
The larger the deficit, the less "ammunition" the BOJ has to use to maintain the exchange rate, and the more difficult it is for the exchange rate to support, forming a vicious circle. If this continues, Japan's foreign exchange reserves are in danger of being depleted.
In this situation, the uncertainty of the global economy has made the dollar a safe haven for everyone, and capital continues to run to the United States, which is even worse for Japan.
Domestically, in addition to exchange rate issues, there is also an aging population and a long-term economic stagnation, and a series of internal and external pressures have made Japanese policymakers more cautious in finding a delicate balance between maintaining domestic stability and international pressures.
It is striking that in the current dollar-dominated international financial system, Japan's influence is quite limited, despite its huge economic scale and strength that cannot be underestimated.
In fact, this is not only a problem unique to Japan, but also many other countries are facing the same serious situation.
Watching the yen's exchange rate fluctuate against the US dollar, we are not just looking at the numbers, but also witnessing how a country struggles to survive in a complex global economic system.
In general, the road in Japan is really not easy, and I can only hope that they can find a solution to the problem, and hope that the Japanese will get better in the future.
However, judging by the current situation, this journey is undoubtedly long and arduous, and I can only wish the Japanese a "bright future".
Information sources:
"The yen fell below the 160 integer mark against the dollar" Yicai