The yen has completely given up resistance!
April 26thBingobingo39The monetary policy meeting of the Bank of Japan decided to keep the current monetary policy unchanged and keep the policy interest rate target at 0 to 0Bingobingo39Between .1%. Then the yen plummeted. As of 5: 00 Beijing time on the 27th, the yen had depreciated toBingobingo39158 at the mostBingobingo39. 4455 to the dollar, the lowest in about 34 years since May 1990.
Because the depreciation of the yen can promote the entry of foreign capital into Japan, which in turn drives up Japanese consumption and drives up Japanese inflation. At the same time, it is also conducive to Japan's exports. Recently, Japan's economic recovery is also very obvious. As a result, the market believes that Japan seems to be trying to make the best use of its currency devaluation to boost its domestic economy.
So how much impact will the depreciation of the yen have on the world? Analysts believe that the sell-off of the yen will increase demand for the dollar, which in turn will increase the pressure on emerging market currencies. At the same time, the more the yen depreciates, the more likely it is for the Japanese government to intervene. Once intervened, there are bound to be "rough waves" in global stock and foreign exchange markets, which is tantamount to the arrival of a super "black swan".
The Japanese yen has made history again.
This morning, USDJPY closed with a bald and sunny line. As of 5: 00 Beijing time on the 27th, the yen had depreciated to as much as 158.4455 to the dollar, a 34-year low since May 1990, and a daily depreciation of nearly 2 per cent was also rare in history.
In the week of April 23, traders, including hedge funds and asset managers, held more than 184180 yen short contracts, breaking the previous week's record (since records began in 2006), according to the Commodity Futures Trading Commission (CFTC) Weekly report. Meanwhile, the yen fell to its lowest level against the euro in nearly 16 years, at 168.23, and against the Australian dollar to its lowest level in nearly a decade.
So, what happened? The monetary policy meeting of the Bank of Japan decided on the 26th to keep the current monetary policy unchanged and keep the policy interest rate target between 0 and 0.1%. This may be the main reason. Kazuo Ueda, governor of the Bank of Japan, also made it clear that he had no intention of saving the weak yen. "there is little sign that the Bank of Japan is considering raising interest rates in the short term," said Prashant Newnaha, senior Asia-Pacific interest rate strategist at TD Securities in Singapore.
Japan Waseda University Business School Associate Professor Nobuhiko Sakahara believes that the biggest reason for the depreciation of the yen is not in Japan, high interest rates in the United States is the main reason. The market originally predicted that the United States would cut interest rates three times this year, but the US consumer price index remained high and expectations of a US interest rate cut fell. Compared with the domestic factors in Japan, the influence of the United States is stronger. No measures taken by the Bank of Japan will make much difference. Nobuhiko Sakahara also pointed out that the depreciation of the yen will further raise prices. If the depreciation of the yen continues, it may have a far-reaching impact on the Japanese economy.
The impact on Japan
In fact, from the behavior of the Bank of Japan, we can see that the depreciation of the yen is good for the Japanese economy.
Standard & Poor's Global reported on Tuesday that Japan's initial Jibun composite PMI rose to 52.6 in April, the highest level since August last year. Japan's Jibun manufacturing and services PMI rose to 49.9 and 54.6 respectively in April, the highest level since May last year. An index above 50 indicates that the economy is expanding.
The depreciation of the Japanese yen has attracted a large number of tourists to Japan. The total number of visitors reached an all-time high of 3.1 million in March, exceeding 3 million for the first time, up nearly 70 per cent from a year earlier, according to the Japan National Tourism Administration. Foreign tourists spent 1.75 trillion yen ($11.3 billion) in Japan between January and March, an increase of 52 per cent over the same period in 2019, according to the Japan Tourism Administration.
Meanwhile, on April 17, figures released by Japan's Ministry of Finance showed that exports rose 7.3% in March from a year earlier, with shipments of cars and semiconductors driving overall export growth. This is the fourth consecutive month of growth in Japanese exports.
For more than a decade, Japan has been in a state of low consumption, low growth and low inflation. This time, the Japanese government seems determined to stimulate economic vitality by devaluing its currency. So, will this happen again? From the perspective of Japan's resource endowment, as a resource importer, Japan has relatively few reserve elements and needs to import large amounts of strategic materials and basic materials such as oil. The sharp depreciation of the yen will greatly increase import costs, thus driving up Japanese prices. However, the governor of the Bank of Japan said that so far, the weak yen has not had much impact on the inflation trend.
A potential "black swan"?
So, is the sharp depreciation of the yen another potential "black swan"? Analysts believe that this risk is very noteworthy.
First, if the main cause of the yen's decline against the dollar since March is the "appreciation of the dollar" caused by weaker expectations of Fed interest rate cuts, will the market reaction to the yen be mapped to other currencies, especially in the Asia-Pacific region. Last night, in the course of Japan's great devaluation, the dollar index rose above 106 again. This means that demand for offshore dollars is still strong. In fact, in addition to the Japanese yen, the currencies of many East Asian countries have also faced greater depreciation pressure since April.
Second, the definition of the nature of the current depreciation of the yen will greatly affect market sentiment. The yen as the world's reserve currency, if this position is shaken may aggravate the volatility of the capital market. According to the deduction of Great Wall Securities, the devaluation of the yen increases the willingness of major countries in the world to hold yen and related assets, and the global central banks and institutional investors sell the yen and related assets further leading to the depreciation of the yen, forming a negative cycle.
Third, the unmeasurability of Japanese intervention. On September 22, 2022, Japan's Ministry of Finance intervened in exchange rates for the first time since June 1998 by buying yen and selling dollars. Subsequently, the Bank of Japan intervened, but the effect was not good. With the formation of the trend of the great devaluation, Japan is bound to use more thunderous means if it wants to reverse its expectations. At that time, the global market volatility caused by the exchange rate of the yen will naturally be great. In this case, it is tantamount to a super "black swan" coming.
Editor-in-chief: Yang Yucheng
Proofread: Liu Rongzhi