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The international currency market is in turmoil again, and the yen exchange rate has fallen below the crucial 160 mark, which seems to be behind all the efforts of the Bank of Japan to stabilize the monetary environment. The renminbi also did not fall well, falling below 7.3, directly putting pressure on foreign trade enterprises. It seems that the "breath-holding game" of the United States has begun again, and a new round of harvesting has quietly begun.
Asian currencies are under challenge
The yen's decline has caused quite a stir.
Specifically, in the evening-late evening session of June 26, the yen-dollar dollar rose sharply above the 160 level, a key psychological level that the Bank of Japan has been trying to defend for a long time.
Distant memories go back to April, when the yen briefly fell below this resilient line of defense, prompting the Bank of Japan to intervene in the market by using its massive foreign exchange reserves amounting to 9.8 trillion yen to stabilize the currency market.
However, these efforts did not prevent the extremely fragile Japanese yen, which was extremely fragile in market sentiment, from holding below 160 for just two months before falling back and breaking its all-time low since 1986.
This can't help but make people sigh that Japan's previous efforts to save the market seem to have been in vain, like "returning to the pre-liberation period overnight".
Although the Japanese government and the central bank have been talking about intervening in the market, it seems that even intervention can really be effective in preventing the continued depreciation of the yen?
This is a questionable question. This is because the continued decline of the yen has an impact not only on Japan itself, but also on the global economy, especially the United States.
In fact, Japan is the largest foreign investor in U.S. Treasuries. When the yen exchange rate falls, the real value of its holdings of US dollar bond assets will inevitably be exposed to a high risk of volatility, which may trigger an overall decline in the price of US Treasury bonds.
This situation has caused concern on Wall Street. They are worried that in order to maintain domestic economic stability, Japan may have to take measures such as selling US bonds.
In addition, the latest data shows that Japan has sold 37.5 billion US bonds in its foreign exchange reserves in April.
Although there is no conclusive evidence that the drawdown was caused by a massive sell-off of US Treasuries, many leading analysts hold strong speculation that the Japanese government is likely to have begun to take such actions.
In the face of the current situation, some perceptive analysts have even boldly predicted that the Bank of Japan may gradually implement a new monetary policy after July this year, which may include various measures such as raising interest rates.
Once Japan starts raising interest rates, not only the government but also investors may start to sell off overseas assets, including US bonds, which will also lead to a decline in US bond prices, further exacerbating volatility in global financial markets.
Challenges and countermeasures for the renminbi
The recent situation with the renminbi is indeed a bit worrying. That same night, the renminbi fell below 7.3 against the dollar, its lowest since November.
Don't look at the RMB exchange rate this year, it has hit the figure of 7.3 several times, but it has not really fallen below, and this time it has really broken through.
To understand the meaning of this fall below 7.3, you must know that this is actually the depreciation of the yuan against the dollar. The higher the number of the exchange rate, the less our money is worth it.
On May 3 this year, the exchange rate of the renminbi against the US dollar rose to 7.16, and then began to decline. Although the numbers 7.2 and 7.3 may not sound like a big deal, in the forex market, this round number threshold has a very important psychological and market symbolic meaning.
The depreciation of the renminbi this time is mainly due to the strength of the dollar. The U.S. employment data for May was very good, making the market worry that inflation may be coming up again; The June Fed meeting also showed a hawkish stance, with the market expecting a rate cut, but their hopes were disappointed.
Not only the United States, but also the European Central Bank and the Bank of Canada's recent rate cuts, as well as the Bank of England's possible rate cuts, have made the dollar look stronger.
In the face of this situation, our central bank has not been idle and has come up with many countermeasures. For example, they have temporarily stopped buying gold and instead maintained foreign exchange cash flow, and have issued some offshore renminbi bonds. These are forward-looking preparations against possible external shocks.
It is worth mentioning that our country is a country with a long-term trade surplus, and foreign exchange controls are also strict, mainly to protect the renminbi and our economic sovereignty from foreign currencies.
The floating exchange rate system of the renminbi under the control of the "basket of currencies" is significantly different from that of other countries such as the United States, Japan and the United Kingdom, which have adopted a free and volatile market exchange rate system.
Moreover, the renminbi's share of global trade settlements has climbed to 48.4 percent, surpassing the long-dominant dollar.
The trading volume of the onshore yuan is even larger than that of the offshore yuan. There should be many ways to solve the problems of slow internationalization of the renminbi and depreciation of the exchange rate.
Now in this situation, we can only see how the central bank responds. After all, the foreign exchange market is changing very fast, and it is not possible to say a few words or do a few things to see the effect immediately.
We'll have to be patient a little bit and see what happens next. I hope that the renminbi can stabilize and stop depreciating.
A contest of currency warfare, endurance and strategy
In the global financial market, currency fluctuations have a direct impact on the stability of international relations.
After all, no country wants to be at a disadvantage for a long time, and even Japan, where a long period of currency depreciation puts enormous pressure on its domestic economy.
Now, Japan is considering countermeasures and trying to find a way to maintain its own economic stability.
U.S. policies have also had a significant impact on global financial markets. Although the US has raised the federal funds rate to 5.25% to 5.5% since July last year, market expectations for a US rate cut have gradually waned.
Due to the extremely high interest rate on US dollar deposits, foreign trade enterprises are more inclined to hold US dollars to obtain high deposit interest than to exchange them for domestic currency.
This behavior leads to a shortage of foreign exchange supply in the spot market, which in turn puts pressure on the exchange rate of the national currency.
In such a situation, governments and monetary authorities need to adopt effective strategies to maintain the stability of their currencies.
This may include implementing macro-control policies, strengthening regulatory systems, and developing contingency plans to deal with possible market volatility.
In addition, international cooperation is particularly important in the current environment, and countries need to work together to prevent unilateral policy behavior from causing greater instability in global financial markets.
In short, the current challenge for Asian currencies is not only a defensive battle, but also a battle of endurance and strategy.
In this process, countries need to take appropriate measures to ensure economic stability and growth, taking into account various domestic and foreign factors.
Information sources:
"The Yen Plummets! U.S. market participants are worried: the Japanese government may sell U.S. bonds again".
"Offshore RMB Falls Below 7.3, Yen Reaches New Low, Traders Wait for US PCE Inflation Report" Yicai