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【Today's headlines】The currency has been defeated! Japan threw 9.8 trillion yuan to bail out the market unsuccessfully, and the dollar is approaching the city, and now Japan has been cornered.
The depreciation of the yen has become big news in the international financial markets. We all know that Japan is an industrial power and depends on the global market, especially the United States. However, the exchange rate of the yen against the dollar has fallen sharply recently, hovering at a low level of more than 160 points for many consecutive days.
This is no joke for Japan. If it is cut leeks by the dollar, the consequences will not be small. So why is the yen depreciating? What's the story behind this? How did the Japanese government respond?
1. The yen has depreciated, assets have shrunk, and the cost of living has risen
Let's first talk about the direct impact of the depreciation of the yen. As soon as the yen fell, those yen-denominated assets shrank as if they had been blistered.
This has not only damaged Japanese businesses and personal property, but also pushed up the prices of domestic goods. Why? Since there are few items produced in Japan, most of them need to be imported, such as oil, natural gas, and grain.
The depreciation of the yen naturally increases the cost of importing these things, and in the end, consumers have to pay for this bill. Japanese housewives are finding that the prices of fruits and vegetables in supermarkets are changing day by day, and the money in their wallets is becoming more and more difficult to spend.
Second, the cost of manufacturing is soaring, and the unemployment rate may rise
The manufacturing industry is not having a good time either. Since Japan is an island country, most of the raw materials have to be imported from abroad, and the depreciation of the yen has caused the cost of these raw materials to skyrocket. As a result, the cost of manufacturing increases, and profit margins are compressed.
If companies can't afford it, they may lay off employees, which means that the unemployment rate may be rising. It is important to remember that the unemployment rate in Japan has been stable for the past decade, around 2.6%. If the yen continues to depreciate, this figure may become less pretty. For many workers, job stability means everything, and the shadow of unemployment makes them uneasy.
3. The Japanese government's exchange rate defense war
Faced with such a situation, the Japanese government will certainly not sit idly by. They have dropped 9.8 trillion yen (equivalent to 443.7 billion yuan) in an attempt to stabilize the exchange rate. But the effect is not obvious.
Japan's Vice Minister of Finance, Mato Kanda
Japan's Vice Minister of Finance, Mato Kanda, also said that they are ready to intervene in the exchange rate 24 hours a day. However, the United States has not been idle, and they have put Japan on the watch list of currency manipulators.
The U.S. Treasury has three criteria, and if any of them are touched, they could be considered currency manipulation.
Japan has to be cautious, and this feeling is like walking a tightrope, and it has to stabilize the exchange rate without touching the red line of the United States. It's like a war without gunpowder, and both sides are fighting in secret.
4. If the yen exchange rate collapses: a ripple effect on the global economy
If the yen exchange rate does collapse, it will not only be a pain for one country, but may cause a global economic earthquake. As the world's third largest reserve currency, the sharp fluctuations in the exchange rate of the yen are enough to shake the stability of the global financial market.
1. Turbulence in global financial markets The collapse of the yen exchange rate was first and foremost caused by the global financial markets. As a safe-haven currency, the yen will quickly flee large amounts of money in the event of a loss of confidence, towards the US dollar or other relatively stable currencies. This large-scale flow of funds can lead to sharp fluctuations in the global foreign exchange market and may even trigger a currency crisis.
2. Japan's economy is hit hard For Japan itself, a collapse in the yen's exchange rate would be devastating to its economy. The surge in import costs will put Japan, a highly dependent country on imports, under severe inflationary pressures. Soaring production costs and sharply compressed profit margins could lead to large-scale layoffs and business closures, which in turn drove up unemployment and lowered people's living standards.
3. Global Supply Chain Disruption Japan plays a key role in the global supply chain, especially in industries such as automotive, electronics, semiconductors, and more. The sharp fluctuations in the yen exchange rate will directly affect the cost structure of these industries, which may lead to disruptions in global supply chains. Suppliers and manufacturers may adjust prices or reduce supply due to rising costs, ultimately affecting the purchasing power and consumer confidence of consumers around the world.
4. Geopolitical tensions Economic issues often spill over into the political realm. The collapse of the yen's exchange rate could exacerbate frictions between Japan and its major trading partners, especially on issues such as currency manipulation and trade imbalances. This economic mistrust could translate into geopolitical tensions that could affect regional stability.
5. Japan's response strategy
The Japanese government's response is also multi-pronged.
On the one hand, they have to appease the United States and avoid direct conflict;
On the other hand, Japan may indirectly influence the direction of the dollar by reducing its holdings of US Treasuries.
If Japan sells US bonds on a large scale, it could send the wrong signal to the market that the US will cut interest rates to temporarily ease the pressure on the yen.
Even if the U.S. warns the Bank of Japan, private institutions can quietly reduce their holdings behind the scenes to help stabilize the yen.
This strategy is like playing a high-stakes poker game, where every step has to be taken with caution.
6. Priority should be given to protecting the bond market and stock market
In addition to the foreign exchange market, Japan also has to pay attention to the bond market and the stock market. The Japanese government has issued a large number of government bonds to stimulate the economy, and if the government bonds are sold off and yields rise, the cost of government borrowing will increase. In addition, the Bank of Japan also holds a lot of government bonds, and the fall in the price of government bonds will shrink the assets of the central bank.
The stock market and the bond market tend to be both winnings and losses. The Nikkei has been rising since the beginning of 2023, and financial market stability is too important for the Japanese economy. Investors and business owners in Japan are keeping a close eye on the market, fearing that their wealth will evaporate overnight.
7. Japan's soft power: scientific and technological innovation and cultural export
In addition to hard-hitting economic means, Japan also has a trump card - soft power. Japan occupies a position that cannot be ignored in the world's technology and cultural industries. From high-tech electronics to anime and music, Japan's cultural influence is everywhere.
Against the backdrop of the depreciation of the yen, the Japanese government is likely to increase investment in these areas, hoping to attract more foreign investment and inject new vitality into the economy by enhancing its soft power.
It's like a marathon, in addition to sprinting, you also have to learn to adjust your breathing and maintain long-lasting endurance.
8. International cooperation: Find allies to jointly resist risks
In the international economic arena, there are no eternal friends and no permanent enemies, only eternal interests. Faced with the challenge of the depreciation of the yen, Japan began to actively seek allies to jointly resist risks.
Whether it is Europe, Asia, or Australia, Japan is strengthening economic cooperation with these countries in an attempt to build a multilateral economic safety net.
It's like a diplomatic ball, where each country is looking for the right dance partner to dance together for an economic recovery.
End:
In short, the depreciation of the yen has caused a lot of trouble for Japan. The Japanese government is now dancing in shackles, guarding against the United States and protecting the assets of its citizens. Their efforts seem to be somewhat weak.
It is hoped that the yen will return to the normal track as soon as possible, so that Japan's economy can stabilize again.
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