Recently, the yen has begun to depreciate again, and on June 28, the dollar rose above the 161 mark against the yen intraday, and the yen exchange rate hit a new low in 38 years.
At this critical juncture, Japan's top person in charge of foreign exchange affairs was replaced. According to Reuters, the Japanese government appointed Jun Mimura, director of the International Bureau of Finance of Japan's Ministry of Finance, as vice minister of finance on Friday, replacing Mato Kanda in charge of foreign exchange affairs.
Mato Kanda is Japan's highest-ranking official in charge of foreign exchange affairs, and Mato Kanda has been serving as Vice Minister of Finance for three years.
In June 2023, Japan's Ministry of Finance extended Kanda's term for another year, when the market interpreted this unusual move as a support for the Japanese authorities' stance of intervening in the yen exchange rate.
Kanda actively defended the yen exchange rate and launched several actions to intervene in the yen exchange rate during his tenure. Kanda pushed for a $65 billion yen intervention in 2022.
In 2024, Kanda pushed a record 9.8 trillion yen foreign exchange intervention to support the yen between the end of April ~ the beginning of May.
On June 20, the U.S. Treasury Department announced that Japan would be added to the foreign exchange "watch list", in part, as a warning to Japan's intervention in the yen. As for the U.S. move, Kanda made a tough response.
On June 24, Kanda warned that the Japanese government is ready to intervene in the foreign exchange market 24 hours a day if necessary, and said that the United States' move to put Japan on the foreign exchange monitoring list last week will not affect Japan's policy choices.
Mimura's appointment will take effect on July 31, and at present, the market has little understanding of Mimura's monetary policy stance.
At present, Japan's interest rate and GDP growth rate are significantly lower than those of the United States, and the outlook for Japan's economy is bleak. At the same time, Japan has the worst debt bubble in the world. Japanese investors are also accelerating their overseas investments and selling yen. Against this backdrop, the yen will continue to face increased depreciation pressure in the future.
Japan's current interest rates are much lower than those in the United States and Europe, for example, the current interest rate in the United States is 5.25%-5.5%, which is significantly higher than Japan's 0-0.1%.
In the first quarter of 2024, Japan's real GDP fell by 0.5%, while the United States grew by 2.8%. At the same time, Japan's debt-to-GDP ratio is about 260%, twice that of the United States, and it has the worst debt bubble in the world.
In addition, since 2012, Japan has used monetary and fiscal policies to the fullest in order to stimulate the economy, but it has not been able to get Japan out of the lost 30 years, and the outlook for the Japanese economy is bleak.
Since 2024, the situation of Japanese households selling yen and investing overseas has accelerated. In the first five months of 2024, the net purchase of overseas investment by domestic investment trust management companies and other companies exceeded 5.6 trillion yen, exceeding the 4.5 trillion yen in the whole of 2023.
At present, overseas capital is still shorting the yen in a variety of ways, in addition to directly shorting the yen in the foreign exchange market. Overseas capital, represented by Warren Buffett, is still issuing a large number of yen bonds, betting that the yen will fall in the future, and it will need to repay less money.
As far as the United States is concerned, the United States hopes that the yen will continue to fall, which will lead to a collective decline in the currencies of Asian countries, triggering turmoil in the economies and financial markets of Asian countries, and impacting China's exports in many ways.
Economic and financial market turmoil in Asian countries will trigger a rise in risk aversion. It will help overseas capital continue to flow into the United States in large quantities, which will be good for the United States. In recent years, the United States has attracted a large amount of foreign capital to the real economy and financial markets of the United States, and in 2023, the United States absorbed one-third of global foreign investment, more than double the historical average.
At the same time, the weakness of the yen and the euro has helped the dollar to remain strong against the backdrop of no rate hikes in the United States.
Recently, the United States has issued a series of warnings against Japan's intervention, repeatedly warning Japan to consult with the United States before taking action.
Early May. Japan's exchange rate intervention at the time immediately triggered a tough warning from the United States, with US Treasury Secretary Janet Yellen warning about Japan's monetary intervention. Yellen said that the yen has indeed seen considerable volatility in a relatively short period of time, and we expect these interventions to be rare and will be subject to consultations.
At the end of April, Yellen had made it clear that she opposed Japan's unilateral intervention in the yen exchange rate, and said that Japan would consult with the United States before intervening in the exchange rate. In addition, US President Joe Biden and former US Treasury Secretary Summers also criticized and warned about Japan's intervention in the yen.
One of the main reasons for the rapid response of the United States at the time of the peak of U.S. bond issuance was the fear that Japan would intervene in the yen in the future by selling U.S. bonds on a large scale.
That will not only trigger a rise in US Treasury yields, but also push up the interest cost of US Treasury bonds and the fiscal deficit. At the same time, it will also cause U.S. Treasuries to fall, investors to lose more, more U.S. Treasury holdings to thunder, and make it more difficult to auction U.S. Treasury bonds.
And in April 2024, in order to provide the funds needed to intervene in the yen, Japan has sold $37.5 billion of US bonds, which has clearly violated the bottom line of the United States.
However, due to Japan's lack of funds, the size of US bonds accounts for 90.5% of Japan's foreign exchange reserves, and in order to provide the necessary funds for the yen intervention, Japan can only continue to sell US bonds.
Thus, last week's announcement by the US Treasury Department that Japan would be added to the foreign exchange "watch list" is tantamount to a warning to Japan. And a few days after Japan's Vice Minister of Finance, Mato Kanda, made a tough response to this, Masato Kanda was replaced.
If the U.S. warning does work, the yen may continue to depreciate sharply and weigh on Asian currencies and financial markets.