All of the information stated in this article is based on reliable sources of information and is detailed at the end of the article
Text/Editor: Look at Mr. Zhang
There are growing signs that the yen will continue to be under depreciation pressure.
In the last two days, the yen has stood at a dangerously high level of 160 against the dollar, and if this situation continues, Japan may become the first country in Asia to be "cut leeks" by the dollar.
In order to stop the depreciation of the yen, the Japanese government has invested 9.8 trillion yen (equivalent to 443.7 billion yuan) to intervene in the exchange rate, but it does not seem to be ideal, and the yen is still falling.
So what should Japan do next?
Friendly reminder: Because the characters in this article are long, there may be an "ad unlock mode" in the article, but fortunately, in the new policy of the platform, ad unlocking is free, you only need to read it to continue reading, thank you for the officials, and the platform.
1. Japan that was forced to go up the cliff
The yen has long been a currency closely following the US dollar, playing an important role in international trade, and for a long time, due to Japan's large manufacturing power, the yen has also become a popular choice for international reserve currencies.
However, the yen has fallen sharply recently, mainly because the Fed's interest rate cut policy is still uncertain, and the market is very bearish about the yen, which has made the yen continue to fall, and even the Japanese government feels the pressure and is ready to intervene.
Japanese Finance Minister Shunichi Suzuki has publicly stated that they are closely monitoring the currency market and will take all measures if necessary.
So, what are the consequences of the continued depreciation of the yen?
First of all, the most direct manifestation of the depreciation of the yen is the weakening of Japan's national strength, which was once the world's second largest economy, but has experienced a long recession after the bursting of the economic bubble, and now the downward trend of the economic foundation is becoming more and more obvious.
Japan's GDP has been surpassed by China, last year by Germany, and there are even predictions that it may be surpassed by India next year, and Japan's per capita GDP has also fallen to 34th in the world, the lowest in the G7, which is difficult for many Japanese to accept.
Japan is a resource-poor country, surrounded by the sea, most of the raw materials need to be imported, as soon as the yen depreciates, the cost of imports will go up, and the cost of manufacturing will rise, which will ultimately damage the national economy.
However, while prices are rising, real wages for domestic workers have not risen, and in March this year, the unemployment rate fell for a record 24 consecutive months, which directly pushed up the unemployment rate.
Japan's unemployment rate peaked at 5.5% after the 2008 financial crisis, but has continued to decline in the following years, remaining around 2.6% for the past decade, mainly because the yen exchange rate has been relatively stable during this period.
But since 2020, Japan's economy has been in trouble, and after the outbreak of the Russia-Ukraine conflict, Japan joined the sanctions against Russia, and the cost of energy imports surged.
Although Japan is a member of the G7 group, the influence of the G7 is not as strong as before, and its contribution to the global economic recovery is becoming smaller and smaller.
In fact, the further depreciation of the yen just gave the United States an opportunity, and it also took the opportunity to carry out a new round of "harvesting" against Japan, which made Japan even more miserable.
In order to boost the weakened yen, the Japanese government has invested 9.8 trillion yen in the foreign exchange market, equivalent to $62 billion, in exchange rate intervention.
However, this unprecedented rescue did not have the desired effect, and at the close of trading on Friday, the yen fell below 157 yen against the dollar, pulling it back to its lowest point in 34 years since 1990.
Now that Japan is on the edge of a precipice, how can the government break the situation next?
Second, where should Japan go from here?
The yen's decline has not only affected itself, but also the Japanese stock market.
Schroders, which recently downgraded Japan's stock market, said in an investor note released on Wednesday that the yen's weakness has begun to affect the self-confidence of ordinary Japanese consumers and small businesses, who are no longer bullish on the yen.
In order to stabilize the bond market and the stock market, Japan has no choice but to increase the large-scale sell-off of US Treasury bonds.
At present, the Bank of Japan holds more than 1 trillion US dollars in US bonds, which is the largest holder of US bonds in the world, and in terms of foreign exchange reserves, the Bank of Japan also has 1.3 trillion US dollars, of which more than 80% are US dollar assets, and US bonds account for a large part.
In fact, in order to reduce the pressure of the yen's depreciation, the Japanese government has begun to quietly reduce its holdings of US debt, although it is still maintaining friendly and interactive relations with the United States on the surface.
According to data released by the U.S. Treasury Department, Japan reduced its holdings of U.S. debt by $37.5 billion in April.
You must know that the situation in the United States is not easy, the global epidemic is still spreading, and the Federal Reserve has begun to tighten monetary policy, which puts the Bank of Japan in a dilemma.
If the Bank of Japan also prints a lot of money to buy government bonds, like the Fed, the $1 trillion in government bonds in its hands may become waste paper, but if it does not sell these government bonds, it will be difficult to curb the momentum of the yen's depreciation.
Therefore, Japan may have to choose to sell US bonds, which has the advantage that the market may create the illusion that interest rates are being cut, thereby easing the pressure on the yen to depreciate.
But there are risks in doing so, and if Japan sells off US bonds on a large scale, the dollar exchange rate and the US bond market could be affected, which could anger the US and incur tougher sanctions, so the process is slow and urgent.
Of course, in addition to selling US bonds, Japan has another way to go, and that is to raise interest rates.
There are now some signs that the Bank of Japan has begun to consider the possibility of raising interest rates, and the rate hike needs to meet certain conditions, such as inflation to reach a certain level.
Japan's core inflation rate has recently risen to 2.5%, up from 2.2% previously, and the Bank of Japan has its own views on inflation and deflation, and has accumulated some confidence.
However, not everyone supports a rate hike, and there are many issues that may lead to increased debt, such as a rate hike.
In addition to the two old faces of the US dollar and the Japanese yen, there are also emerging forces such as the Indian rupee and the renminbi on the Asian currency stage.
In particular, the recent sharp drop in the Indian rupee has been remarkable, falling directly to an all-time low, which has brought a lot of shock to the entire regional economy.
The exchange rate of the offshore renminbi fell below 7.3 for the first time since the reform and opening up, and the Asian financial market has added a lot of uncertainty because of this change, adding new challenges to the Bank of Japan's decision-making.
As a rule of thumb, the exchange rate reacts immediately when the market senses that the central bank is going to raise interest rates, and since Japan has been in a low interest rate environment for many years, if the interest rate hike is successful, the impact on the entire economy will be very large, so Japan is even more stressed.
However, no matter what Japan chooses, it will not be smooth sailing, and they may only hope that the United States itself will have problems in the future, so that they will not have time to take care of the plan to short Japan.
#长文创作激励计划#
Reference Sources:
2024-04-17 21:57 Brokerage China Heavy! Currency wars, let's go!
2024-06-03 06:44 Huanqiu.com The unprecedented rescue efforts are difficult to cover the huge interest rate spread, and Japan's "defend the yen" operation has achieved little effect
2024-06-22 08:37:22 Financial Circles The global currency war has begun, and the yuan has politely shot