The Bank of Japan is about to act.Playvideopokeronlinerealmoney?
The Bank of Japan seems unable to sit still in the face of the rapid depreciation of the yen. On May 8 local time, Kazuo Ueda, governor of the Bank of Japan, suddenly warned that a rapid and unilateral fall in the yen was undesirable for the Japanese economy and that "monetary policy measures" might be taken to deal with currency market fluctuations. The comments rekindled market expectations that the Bank of Japan could raise interest rates in June.
As Kazuo Ueda said, the rapid and unilateral decline of the yen will have a huge negative impact on the Japanese economy. According to the Meiji Yasuda Comprehensive Research Institute, when the yen falls to 160 against the dollar, import prices will rise by 8%.Playvideopokeronlinerealmoney.7%. In addition, Mizuho Research and Technology Company estimates that due to the sharp depreciation of the yen and high oil prices, the average expenditure burden of Japanese households may increase by 106000 yen in fiscal year 2024.
At the current point of view, it is becoming more and more likely that the US will maintain "high interest rates for a long time", meaning that the depreciation of the yen may continue. Wells Fargo said the theme of a stronger dollar and arbitrage was likely to continue in the absence of a catalyst to trigger a reversal, and there was expected to be further upward room for the dollar against the yen.
The Bank of Japan is heavy.
Just now, Kazuo Ueda, governor of the Bank of Japan, suddenly warned of a possible "monetary policy response" to currency market volatility.
On May 8, local time, Kazuo Ueda told the Japanese Diet that changes in Japan's exchange rate could have a significant impact on the economy and prices, and that attention should be paid to the risk that the impact of exchange rate fluctuations on inflation is becoming greater than in the past. Therefore, the central bank may take monetary policy response measures.
He further warned of the impact of the recent sharp fall in the yen on the economy. Kazuo Ueda said that the rapid and unilateral decline of the yen is not good for the Japanese economy and is not desirable.
Kazuo Ueda also said that the future development of foreign exchange rates and international commodity prices is another risk. The depreciation of the yen is increasingly affecting inflation as Japanese companies tend to pass on higher costs to consumers by raising prices.
Kazuo Ueda said it might be appropriate for the BoJ to raise interest rates faster if the upside risk to the inflation outlook increases. He said price trends were firmly moving towards the central bank's stable inflation target of 2 per cent, but the risks of both upward and downward inflation were high.
Mr. Ueda said he would not comment specifically on recent foreign exchange fluctuations.
Analysts believe that compared with before, Ueda's latest statement has become very tough, sending a more clear signal of "exchange rate protection". The implication of "taking monetary policy response measures" is that the possibility of accidental interest rate increases cannot be ruled out.
As a result, the remarks rekindled market expectations that the BoJ might raise interest rates in June.
Japanese Finance Minister Suzuki Shunichi, who attended the meeting with Fumio Kishida, said that although the depreciation of the yen has its advantages and disadvantages, he is now very worried about the possible negative impact of high import prices.
Looking back in late April, Kazuo Ueda said at a press conference that the trend price rise brought about by the depreciation of the yen was limited, when the market believed that the rise in interest rates in response to the depreciation of the yen was still a long way off.
As a result, the yen plummeted, falling to 160.24 yen to the dollar on April 29, its lowest level since 1990. As of press time, the dollar was trading at 155.39 against the yen, a cumulative depreciation of about 10 per cent during the year. For the renminbi, the yen has also fallen nearly 8 per cent this year and has fallen more than 4 per cent in the past three months.
At the same time, Masato Kanda, Japan's top currency diplomat, warned that Japan might have to act on disorderly and speculative volatility in the foreign exchange market, reinforcing expectations that the Japanese authorities were prepared to intervene again to support the yen.
At present, the Bank of Japan is in a dilemma between protecting the exchange rate and protecting the economy. In the high interest rate environment of the Federal Reserve, the Bank of Japan will have to raise interest rates further if it wants to maintain the exchange rate, but this may damage the Japanese economy.
Where will the Japanese yen go?
Just like the latest statement by Kazuo Ueda, the rapid and unilateral decline of the yen is having a negative impact on the Japanese economy. Among them, Japan relies heavily on imports of raw materials, energy and food, which undoubtedly increases the burden on importers and Japanese consumers.
According to the Meiji Yasuda Comprehensive Research Institute, when the yen reaches 160 against the dollar, import prices will rise by 8.7%. When the yen reaches 170 against the dollar, import prices will rise by 13.5%.
According to Mizuho Research and Technology Company, due to the sharp depreciation of the yen and high oil prices, the average expenditure burden of Japanese households may increase by 106000 yen in fiscal year 2024.
With regard to the reasons for the sharp depreciation of the yen, market participants believe that the continued expansion of the interest rate gap between Japan and the United States is the key factor leading to the pressure on the yen exchange rate. Over the past few years, the United States has maintained a high interest rate environment, while Japan has maintained a long-term low interest rate environment.
The spread between Japanese and US bond yields has widened, attracting a large amount of speculative money for arbitrage. The specific operation is to borrow money in a country with low interest rates and then invest in another country where there is a high return, thus earning a spread. In an environment where the Federal Reserve maintains high interest rates, the United States has been trading in the yen as a source of funding.
At the current point of view, it is becoming more and more likely that the US will keep interest rates "high for a long time". If this scenario becomes possible, it means that the depreciation of the yen will last for a long time.
UBS believes that as the Fed is likely to postpone the start of the interest rate cut cycle until September, the dollar is expected to remain well supported in the coming months and the dollar's strength is likely to continue into the third quarter.
Wells Fargo said the current theme of a stronger dollar and arbitrage operations was likely to continue in the absence of a catalyst to trigger a reversal. The widening spreads are likely to further support the dollar as other G10 central banks cut interest rates before the Fed may act in September. Still optimistic about short-term arbitrage prospects, the dollar / yen is expected to have further upside.
Currently, speculative funds are still selling off the yen in large quantities. Data from the U.S. Commodity Futures Trading Commission (CFTC) showed that as of April 30, the scale of yen sales in the non-commercial sector (speculative funds) still exceeded 2 trillion yen, but net sales fell from the previous week.
Looking to the market outlook, RBC Capital Markets believes that although Japanese financial regulators may try to curb the decline in the local currency, the yen against the US dollar may still fall to the 165 level.
Alvin Tan, head of Asian foreign exchange strategy at RBC Capital Markets, predicts that the yen may fall to its lowest level against the U.S. dollar since 1986. The main reason behind this is that the spread between Japan and the United States will continue to widen.