【Article/Observer Network Columnist Where to Hit】
Dear old irons, lao He, who recently likes to talk about international financial topics, asks, what are the characteristics of the global capital market in June?
Most of the answers should be: Giant tremor.
First, the Fed announced a 75 basis point rate hike, triggering a crash in the US stock market;
Immediately after, the Bank of England raised interest rates for the fifth consecutive month, triggering a huge earthquake in the UK bond market;
Immediately after, the SNB unexpectedly raised interest rates by 50 basis points, which caught the foreign exchange market off guard and was another bloody case;
However, if we want to say that the earthquake is the most severe, we still have to count the Japanese market, because the source of the earthquake is the Bank of Japan.
On June 15, the Japanese government bond market plummeted continuously, triggering two circuit breakers, triggering speculation that the Bank of Japan would adjust its existing policies.
On June 17, the Bank of Japan announced that it would stick to its yield curve control policy and bought 10.9 trillion yen of Japanese government bonds that week, making it the most maverick of the world's central banks.
What a scene, it's like a person has entered the ICU, and then shouted that I want to smoke and drink, burn my head!
Behind japan's seemingly stable wave of unlimited printing of money is not only Japan's helpless move, but also covers up Japan's deep-seated core contradictions.
After all, on playing with fig leaf, He is good at it in Japan.
If Japan fails to solve this problem, perhaps in one lifetime, the yen will collapse like the Kuomintang's golden coupons.
At that time, 10,000 yuan in Japan pure play tourism for a month is not a dream!
Today, I will give you a good analysis of what Japan's current policy is, why Japan is doing this, and the cost of extreme policies for Japan.
On June 17, the Bank of Japan decided to maintain massive monetary easing. Bank of Japan Governor Toshihiko Kuroda held a press conference after the meeting. Pictured from Kyodo News Agency
On the release of water, all the people here are brothers
Let's start with the current central bank policy of Japan.
The full name of the BoJ's current policy is Yield Curve Control, or YCC policy, which was first proposed by the Bank of Japan in September 2016 to replace the Japanese QE that has been implemented for many years.
As we said on the last episode, the Fed's policy goal is to keep inflation stable and achieve full employment, which is why the Fed fine-tuns the economy through interest rates.
Due to the large difference between Japan and the US economy, the current policy of the Bank of Japan is also different from that of the United States.
So what is the goal of this policy? In fact, it is quite simple, that is, the Bank of Japan wants to control the short-term interest rate in Japan at -0.1%, and the interest rate on the 10-year Japanese government bonds at 0.25%.
Why the Bank of Japan needs to set these two goals, we will mention them later, first of all, we will study how Japan has achieved these two goals.
For the -0.1% interest rate target, since the interest rate itself is decided by the Bank of Japan, it has never been a problem.
Therefore, the focus of the Bank of Japan's implementation of the YCC policy is the second indicator, how to control the yield of the treasury bond below 0.25%?
In this regard, the Bank of Japan chose to take a two-pronged approach, on the one hand, unlimited purchase of newly issued 10-year Japanese government bonds with a fixed yield of 0.25%, and on the other hand, for sellers who want to sell Japanese government bonds, as long as the yield does not exceed 0.25%, I will accept all the orders.
If you want to make a simple analogy, the Bank of Japan can be compared to the mine owner who frantically buys graphics cards, the original price of 2499 3060 graphics cards, how much is an 8000, whether it is a manufacturer or a DIY player, as long as they are willing to sell to me, all of them will not refuse.
So insisted, because less than 8000 graphics cards can be sold to the mine owner arbitrage, so the price of 3060 on the market was finally controlled at 8000, which is the essence of YCC yield control.
At first glance, isn't this the rich and willful local tycoon, frantically throwing coins in the market to buy and buy? In fact, the bank of Japan's approach is also unique in the world.
We talked about how the Fed released water through QE in the last episode, but compared to the Bank of Japan's YCC, the Fed is too civilized.
The Fed's quantitative easing (commonly known as QE) differs from Japan's YCC in two fundamental ways.
First of all, the Fed's QE is to fix the size of the monthly bond purchases, while Japan is how much to give.
Secondly, in terms of bond yields, the Fed chose to buy at the market price, and interest rates followed the market, while the Bank of Japan chose a fixed yield of 0.25%.
The difference between this is that the old He continues to use the graphics card market for example, the same is the mine boss, the Fed QE's approach is to send a fixed $80 billion per month to do charity, go to the market listing price to buy the graphics card to buy to spend the money, the rest of the all do not care, for the transaction price of the graphics card is also with the market, highlighting a focus on participation, spending deadline.
The Bank of Japan's approach is that regardless of the price of the graphics card in the market, the suggested retail price of 2499 I do not look at, anyway, I will collect 8000 a sheet, how much to have, until the price of the graphics card is raised to eight thousand.
More critically, the Bank of Japan was afraid that if it did not pay attention, the price of the graphics card would collapse, so it decided to be online 24 hours a day, open every day, and collect 8000 graphics cards.
In such a comparison, the Fed's money is simply a Buddhist money, and the degree of radicality of the money thrown is really no match for the Bank of Japan in the world.
I am invincible
After talking about Japan's specific approach, we need to study the motivations of Japan's YCC policy and the current dilemma.
After coming to power in late 2012, Abe launched an economic stimulus policy known as Abenomics to try to stimulate the Japanese economy through a massive release of water.
However, the Japanese economy as a whole is still a pool of stagnant water, there is not much vitality, everyone should save money and save money, and prices are always low.
Over the past few years, the Japanese people continue to choose to lie flat, do not invest or consume, the economy has no bright spots, inflation has not improved, Abe looks anxious in the eyes, and has rushed himself out of the stomach disease.
Since there is no drama in conventional operations, then increase the number of more ruthless, YCC policy is so out of the blue.
The Old and New "Three Arrows" of Abenomics
However, if you are smart, you will definitely think of a question, the most critical part of YCC is to limit the yield of 10-year treasury bonds, but you suppress the yield so low, who is this treasury bond sold to?
Imagine if Lao He wants to invest and buy Japanese bonds, the 10-year return adds up to 2.5%, and it is better to deposit it in China for a year.
According to the Assumption of the Bank of Japan, as long as I come out like this, the rich people in Japan, because they don't make money buying government bonds, will sell government bonds to invest, and when I take over the market, it is equivalent to sending them money, and they should always boost the Japanese economy when they get the money.
At the same time, in order to avoid them from continuing to deposit money in the bank after they get it, the Bank of Japan also intimately fixed the benchmark interest rate at -0.1%, making you die eating interest and honestly serving the real economy.
Is it useful for the Bank of Japan to print money and add a two-pronged approach? The answer is no.
Most investors in Japan, faced with Japan's aging society and shrinking domestic demand, really can't think of any reason to invest.
Since the country does not let me eat interest, the interest rate in the United States next door is higher than mine, and the interest rate is still rising, so can I go to the United States to eat interest?
The answer is, yes. Therefore, driven by this logic, a large number of Japanese investors chose to sell the yen, which triggered a depreciation of the yen.
So this raises a huge question here, as the Fed is about to continue to raise interest rates, and Japan insists on using the YCC policy, the spread between the two sides will be getting bigger and bigger, which will directly lead to everyone not wanting to hold this money-losing Japanese government bond.
The BoJ has only three options in front of it – A to raise the yield on government bonds, B to abandon YCC, and C to die.
Faced with this situation, keen investors have chosen to bet on the first two possibilities, betting on the possibility of the Bank of Japan's compromise, that is, the June 15 meltdown of the Japanese bond market that we mentioned at the beginning.
But to everyone's surprise, the Bank of Japan announced on June 17 that it will continue to firmly adhere to the YCC policy, and will not waver in its 0.25% yield target for all bond sell-offs.
In this regard, Lao He can only say that the Bank of Japan is either ready to practice the spirit of Bushido and prefers to stand and die, or it is secretly preparing some king bomb.
Why do you want to know how much debt Japan has, you will find that the Head of the Bank of Japan is no longer iron, it is steel in steel.
After Abenomics, Japan's government bond market expanded rapidly, and by the end of 2021, the size of the Japanese government bond market reached 1241 trillion yen, that is, about 11 trillion US dollars, and Japan's debt as a proportion of GDP was as high as 255%, which was 100 percentage points higher than that of Italy, which ranked second.
With so much debt, isn't Japan on the verge of bankruptcy at any time?
Dude, you think of Japan simply.
If a country's government bonds were held by itself and I lent the money to myself, would it still go bankrupt? The situation in Japan is close to this state.
From the perspective of investor attributes, only 8% of Japan's long-term government bonds are held by overseas investors, even if short-term Treasury bills are included, the number of foreign investors in the Japanese bond market is only 12%, in other words, Japan's debt bubble is actually dominated by domestic debt. Why, just said, because the interest rate is too low, where are foreigners who want to buy Japanese government bonds to invest?
For Japan, domestic debt is actually not a debt at all, why, because I have a death squad, no, I have the Bank of Japan, it constantly prints money to buy new bonds, borrow new debts to pay off old debts and roll down. What are you afraid of?
It's like Oda is not dead, Luffy can make unlimited waves, its money is equivalent to manga, as much as you want.
Just last week, Japan bought 10.9 trillion yen, or $80.8 billion, of Treasuries to counter the short-selling forces, giving the market a clear signal not to challenge my unlimited printing machine with your limited money.
The Line of the Bank of Japan is what Miyamoto Musashi said: Tell you a secret, I, I am invincible.
Will Japan become Zimbabwe?
Since the Bank of Japan can only cover the sky at home, does it mean that there is no problem with the continuation of Japan's YCC policy for a long time?
The answer is probably not so simple, let's study a question here, what is the cost of Japan doing this?
Looking back at the original intention of YCC and the current trend, we can find a clear trend, Japan's government bond market has been completely distorted by the Bank of Japan, becoming a market in which the Bank of Japan sits and controls.
Of course, the Bank of Japan can do whatever it wants at home and print money like crazy, but there will be two short-term problems and a long-term contradiction here.
The first short-term question is, will the Japanese bond market become a one-man show for the Bank of Japan?
We can see that Japan's government bond market from the perspective of marketization, for external investors do not have any attraction, foreign investors buy Real money and silver Japanese government bonds, the Bank of Japan as long as the printing of money can be redeemed to you, which is worse than selling kidnapping ah.
The result of this development is that the Japanese bond market is completely monopolized by the central bank, leaving only a large buyer of the Bank of Japan, in fact, the number of Japanese government bonds held by the Bank of Japan has accounted for 43% of the total japanese government bonds, and this proportion is still increasing.
But the question is, as long as there is a little common sense, we can know that the money is printed more, inflation can be late, but it will not be absent, so what should the Bank of Japan do then?
If the Bank of Japan stops buying bonds, Japan will instantly become Evergrande.
At present, the Japanese government can be said to be unable to make ends meet, in the face of the high social welfare expenditure of the aging society, let alone reduce the scale of the national debt, even if it maintains the current scale, it is impossible to give interest, purely relying on the Bank of Japan to continue to spread money to continue to live.
So even if the whole world is raising interest rates, Japan must not raise interest rates, which raises a second short-term question - whether the yen will accelerate its depreciation.
As we said in the previous period of the yen's depreciation, although the depreciation of the yen will promote exports, if the expectation of depreciation is not controlled, then the depreciation of the yen will be self-realized, which is an unbearable weight for the Japanese economy.
From April 1, some commodity prices in Japan will continue to rise, and more than 800 kinds of goods, including ramen and dairy products, will face price increases.
So how will this devaluation cycle be self-fulfilling?
The first is the yen sell-off caused by the carry trade caused by the YCC policy, and we have just explained the BoJ's determination to maintain the long-term interest rate of 0.25% and the reason why it cannot raise interest rates, but the reality is that the US 10-year Treasury yield has exceeded 3%.
Since Japan did not impose capital controls, selling the yen and buying dollars became the most reasonable operation for the Japanese, and the yen would also lead to depreciation.
On the other hand, because of the high level of international inflation, Japan, as an importer of raw materials, traders will desperately exchange foreign exchange or hoard goods in advance in order to ensure that they suffer less losses, which will lead to accelerated yen depreciation.
The superposition of these two factors is likely to have the effect of 1+1 greater than 2, making the depreciation of the yen close to out of control, completely offsetting the export increase brought about by the depreciation.
It is precisely because of this that the Bank of Japan and the government, which did not care about the yen exchange rate, have recently begun to tense.
On June 21, Japanese Prime Minister Fumio Kishida held talks with Bank of Japan Governor Higashihiko Kuroda to discuss the issue of the yen's exchange rate, in which Kuroda changed his previous attitude of not commenting on the fluctuations in the exchange rate market, directly stating that he did not want the yen to continue to depreciate.
If there is room for maneuver in short-term problems, long-term problems are even more serious, where is the value benchmark of the yen in the international community?
We can find that through the YCC, the Bank of Japan prints its own money to buy government bonds, resulting in a large number of yen issuance, then there is a core contradiction here, after the crazy printing of money, what is the basis for determining the value of a currency?
After the dissolution of the Bretton Woods system in the 1970s, after the decoupling of sovereign currencies and gold, it was generally guaranteed by national credibility, and the US dollar as the world currency was supported by the strong economic and military strength of the United States.
Similarly, despite much resistance, the ruble's exchange rate against the dollar rebounded steadily after the initial collapse of the Russian-Ukrainian conflict, not only recovering all lost ground, but also recently hitting a seven-year high.
Is it the Central Bank of Russia, or finance capital, that underpins the ruble's strength? Obviously not, if the Russian central bank had this ability, the ruble would not have plummeted by 50% in the early days of the Russian-Ukrainian conflict.
Therefore, the core endorsement that determines the monetary value of the ruble lies in the comprehensive national strength of Russia without shortage of resources, food, and military power online.
And the counterexamples are also obvious. Zimbabwe, printing money printed to the collapse of the currency. El Salvador, with Bitcoin as legal tender, plunged the country into a chicken feather.
If the credit endorsement behind the national currency is not strong enough, then the collapse of the currency is doomed.
How many years can the Japanese economy survive?
Therefore, in the long run, the yen is so over-developed, what does Japan, which has no local resources, rely on to maintain the core value of the yen?
To answer this question, we need to look at the current structure of Japan's economy.
After the Plaza accord in the 1980s, after the sharp appreciation of the yen, Japan's rapid economic growth was interrupted and triggered a subsequent real estate bubble, which eventually led to a depression known as the lost decade.
During this period, Japanese capital did not idle, opened a large number of overseas investment, especially investment in China, with the rise of China's era dividend period, while relying on the status of automobiles, steel and other advantageous industries, to maintain the status of the world power.
The old iron familiar with the Internet must have heard the name of a company, SoftBank. The company's investment process in China is that Japan's domestic capital goes to sea to catch up with China's dividends, which is equivalent to saying that the growth of investing in China is higher than the bank of Japan's printing rate, so it looks like it will not collapse, but it is also very cost-effective.
The Japanese capital that has eaten dividends has continued to enter China, and Lao He knows the owner of a Japanese company, who was squeezed out by the Japanese headquarters in the early 90s and went to Shanghai alone to open a factory to make auto parts. After 14 years of hard work, the company grew into one of the major suppliers in Asia, and the manufacturing cost of the Japanese headquarters was too high and tended to shrink, and he eventually became the chairman of the board, purging the old people who had squeezed him out of the company's board of directors.
The core of maintaining the yen is actually Japan's large overseas investment and a small number of domestic dominant industries exported, so it can be said that overseas assets, especially investment in China, are the real endorsement of the yen's value.
But in the past decade, with the rise of Chinese manufacturing and the wave of priority domestic products, Japan's days of lying and making money in China have gone back.
Japan has long been aware of this problem and has made a lot of investments in Southeast Asia, such as India, Vietnam, Indonesia, Malaysia, etc., trying to bet on the transfer of manufacturing from China to Southeast Asia, thus ensuring that it has the control of the means of production and maintains the core value of the yen.
However, in order to play this game, two conditions need to be met:
One: Southeast Asia is competitive enough
We now know that the whole world is inseparable from China's manufacturing, so even when the Sino-US trade war is the most fierce, the United States does not dare to easily decouple from China, which is also the confidence behind the credit of the renminbi.
And Southeast Asian countries, obviously do not have the ability to replace China in an all-round way, and even the strength to partially replace China has expressed doubts, and we will discuss the topic of whether Vietnamese manufacturing can replace China in the next issue.
Therefore, if Japan chooses to bet on Southeast Asia, it is difficult to achieve the same brilliant record of investing in China in the past, so if the yen changes from anchoring Chinese assets to anchoring Southeast Asian assets, its value will naturally face a revaluation.
Japanese Prime Minister Kishida Fumio visited India and announced a five-year investment plan to invest 5 trillion yen ($42 billion) in India. Pictured from Kyodo News Agency
Second: The world economy needs to be stable enough
If Japan puts its currency endorsement on foreign assets, it is actually binding its own fate to others.
However, unlike the United States, which has the strength to influence or even control other countries, Japan's influence and control over these countries and assets is actually not strong, that is to say, once the world economy is fluctuated, such as the Federal Reserve because of the global economic turmoil caused by interest rate hikes, Japan's overseas assets will also depreciate with a high probability, the yen still has so much, and if the value of the assets supporting the yen shrinks sharply, then the yen will naturally depreciate sharply.
In addition, there is another question, as the Bank of Japan prints so much money, the number is getting bigger and bigger, to maintain this volume of capital return, there are more and more corresponding assets, how to play this game?
Inspiration for China
At present, the impact of the depreciation of the yen has begun to be gradually reflected.
Whether it's the frenzied rush of tourists to Japan to buy Lego toys, Apple mobile phones, or a large number of foreigners going to Japan to buy houses, the depreciation of the yen has triggered a large number of tourists and investors to come and pick up leaks.
At the same time, Japanese incomes, if denominated in foreign currencies, are shrinking.
In 2021, the average annual income of Japanese people is about 300,000 yuan.
In 2022, the average annual income of Japanese people is about 230,000 yuan.
The Japanese receive their monthly yen wages unchanged, but in renminbi terms, the Japanese are harvested, they do nothing, but they really pay for the Bank of Japan's policies.
From the Japanese sample, we can see that if a country that lacks resources does not grasp the means of production and the industry is hollowed out, then it will eventually embark on the routine of financial Ponzi, and the depreciation of the local currency has become the only antidote to solve the debt problem.
In this way, we may see the scene mentioned at the beginning, Chinese go to Japan to spend 10,000 yuan in yen, you can eat and eat and play for a month.
What are the lessons for China?
Lao He feels that the biggest key is that he must master the core means of production, especially the manufacturing and resources of the domestic market, at this point, China has unparalleled innate advantages and endogenous power compared to Japan.
Just this month, the mainland's aircraft carrier 003 was launched, which also means that the mainland has achieved the world's second level after the United States in the field of aircraft carriers.
More importantly, whether it is the mainland's local industries or the interests of overseas investment, we are different from Japan, and we do not need to expect world peace, but have the ability to personally protect it.
It is also in this way that whether facing a potential economic recession in the United States or a possible yen collapse, China will take me as the main force and the real economy as a strong driving force to grow tenaciously.
Thank you for your attention, Lao Ho works with you to watch over the growing China.
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