Asia's "currency defense war" has intensified.
First of all, the Japanese authorities carried out the largest "bailout" operation in history. According to the latest estimates from Japanese money brokers, the Bank of Japan may have carried out the largest ever intervention in the currency market on Friday (October 21), with funds likely to be as high as 5.5 trillion yen (about 270 billion yuan). Japanese Finance Minister Shunichi Suzuki said on the 25th that the Japanese authorities are maintaining close contact with relevant US departments and are ready to take appropriate actions in the foreign exchange market to deal with fluctuations in the yen.
Secondly, the Central Bank of Vietnam urgently announced on the 24th that it would raise the policy interest rate by 100 basis points in order to curb inflation risks, maintain stability and protect the banking system. Analysts pointed out that Vietnam's total interest rate hike from September to October this year reached 200 basis points, which shows the tightness of the Vietnamese authorities on the financial market, and the central bank of Vietnam has sold about 20 billion US dollars (about 144.6 billion yuan) of foreign exchange reserves during the year.
Perhaps the bigger risk to Vietnam's financial system comes from a frantic property market, with Ho Chi Minh City's house prices rising by more than 20% between January and June 2022, the fastest increase in Asia. In the face of the soaring property market, the Vietnamese authorities have set off a round of regulatory storms: continue to strengthen the supervision of the bond sales of housing enterprises, and strengthen the review of loans for real estate projects; In early October, the arrest of Vietnam's "richest woman of Chinese descent" and real estate tycoon Teh Mei Lan led to a run on the Saigon Commercial Bank (SCB), Vietnam's fifth-largest bank.
The Bank of Japan fought
In the face of the violent depreciation of the yen, the Bank of Japan fought thoroughly.
On October 25, according to Japan's Kyodo News, the Bank of Japan's balance of payments data and the latest estimates from money brokerage Central Tanshi showed that the Bank of Japan may have carried out the largest currency market intervention ever to support the fragile yen last Friday (October 21).
Based on the BOJ's forecast level for changes in its current account and Central Tanshi's forecast for the balance of the non-intervention, the size of the intervention could be as high as 5.5 trillion yen (about 270 billion yuan).
It should be noted that 5.5 trillion yen is not the exact amount officially disclosed, but the results may be similar. In September of this year, the agency used the same calculation to estimate the intervention of the yen central bank, and the difference was only 0.1 trillion yen.
In fact, this intervention can also be detected from the fluctuations of the yen against the dollar on that day. On October 21, the yen plunged by 1.65%, and the USDJPY rose to 151.94, followed by two sharp dives, and the USDJPY rate fell back to 144.50.
Yosuke Takahama, chief manager of Central Tanshi, said that according to the data disclosed by the Bank of Japan on the evening of the 24th, there was a funding gap of 5.5 trillion yen, which is unprecedented, and there must be some special factor behind this, and the possibility of intervention is high.
On the morning of October 24, the yen exchange rate once again fluctuated sharply, and the market speculated that the Japanese side may intervene in the currency market again. For now, senior finance ministry officials declined to say whether the intervention took place on Friday or early Monday.
In response, former Bank of Japan official Nobuyasu Atago believes that the Bank of Japan may spend more than 4 trillion yen on Friday night to support the exchange rate, and repeatedly spent 2 trillion yen this week.
The Ministry of Finance will announce the size of the intervention at the end of October, and details such as daily intervention funding data for the current quarter will usually be released in February 2023.
CICC said that Friday's intervention was not only unofficially announced, but also more intense at night. Japan may deliberately refuse official announcements to increase the opacity of foreign exchange intervention, so that the market can always be alert to the possibility of foreign exchange intervention and increase deterrence. The maximum reduction in the exchange rate between the United States and Japan brought about by this exchange rate intervention is about 7 yen, which is greater than the 5 yen of the previous intervention, which shows the strong determination of the Japanese authorities.
However, market funds were still selling the yen, and on October 25, the USDJPY rate rose again to around 149. Perhaps the main reason is that the Bank of Japan is still firmly implementing loose monetary policy and maintaining ultra-low interest rates to support the fragile economy, which is very different from the Fed's interest rate hike policy.
The Bank of Japan is currently the last central bank in the developed world to insist on using very low interest rates to boost the economy, and its short-term policy rate remains at -0.1%.
In this regard, Japanese Finance Minister Shunichi Suzuki said on the 25th that there is no policy contradiction between the Japanese Ministry of Finance's purchase of the yen to support the currency and the ultra-loose monetary policy of the Bank of Japan. The Japanese authorities are maintaining close contact with the relevant US authorities and are ready to take appropriate action in the currency market to deal with fluctuations in the yen.
Violent rate hikes
Faced with a flurry of storm warning signals, Vietnam's central bank is taking urgent action.
On October 24, local time, the Central Bank of Vietnam announced that in order to curb inflation risks, maintain stability and protect the banking system, it will raise the policy interest rate by 100 basis points, of which the refinancing rate will be raised from 5% to 6%, and the discount rate will be raised from 3.5% to 4.5%. In addition, the Vietnamese authorities will also increase the upper limit of the interest rate on deposits in commercial banks by 50 to 100 basis points depending on the maturity period.
From September to October this year, the Central Bank of Vietnam raised interest rates by a total of 200 basis points, which shows the nervousness of the Vietnamese authorities. In a statement, the central bank of Vietnam said it is closely monitoring domestic and overseas markets to manage and use monetary instruments in a timely manner, including intervening in currency and foreign exchange markets to meet the liquidity needs of financial institutions.
Vietnam's Ho Chi Minh Index plunged more than 3% in a single day and hit its lowest level since January 2020 on Tuesday, down 30% from its high of 1,500 points in April this year, making it one of the worst markets in Southeast Asia.
At the same time, the exchange rate of Vietnam's currency, the Vietnamese dong, also continued to fall, continuously setting a record low. In order to ease the pressure of depreciation, Vietnam's central bank has been forced to sell dollars to the market to support its currency, and some estimates say that it has sold about 20 billion US dollars (about 144.6 billion yuan) of foreign exchange reserves this year.
Therefore, some market sources pointed out that Vietnam's interest rate hike is aimed at preventing further depletion of the country's foreign exchange reserves.
The Vietnamese government said that Vietnam's GDP growth this year is likely to reach 8%, higher than the target of 6.0%-6.5%, and significantly higher than the 2.58% growth in 2021. Analysts say Vietnam's faster-than-expected economic growth this year has also provided room for the country's central bank to raise policy rates.
Housing regulatory storm
The bigger risk to Vietnam's financial system may come from a frantic property market.
Even in the turbulent 2022, Vietnam's house prices are soaring: between January and June 2022, Ho Chi Minh City saw house prices rise by more than 20%, the largest increase in Asia, with an average price of more than 35,000 yuan; residential prices in Hanoi, the capital of Vietnam, increased by an average of 20%-25%, and even as high as 35%-74% in some areas.
In the face of a soaring property market, the Vietnamese authorities have set off a round of regulatory storms. In August 2022, Vietnamese Deputy Prime Minister Le Van Thanh made it clear that he would strengthen supervision of bond sales of housing enterprises to avoid speculation and price manipulation; In September 2022, Tao Minh Siu, deputy governor of the Central Bank of Vietnam, warned that the central bank would strengthen scrutiny of bank loans, especially in risky areas such as real estate projects.
A clearer regulatory signal is the arrest of Vietnamese real estate tycoon Truong Mei-lan. In early October, Vietnamese police announced the official detention of Zhang Meilan and other related personnel. According to a police report, Truong Mei Lan is suspected of illegally issuing bonds between 2018 and 2019, raising trillions of Vietnamese dong.
Zhang Mei Lan has a great influence in the Vietnamese real estate industry, and her founder of Wansheng Fa Group is the largest private real estate enterprise in Vietnam. Because Wanshengfa Group is not listed, Zhang Meilan's specific value is unknown, but people in Vietnamese circles generally call her "the richest woman of Chinese descent in Vietnam", and she is the fourth generation of Vietnamese Chinese, with her ancestral home in Shantou, Guangdong Province.
After the news of the arrest was revealed, it caused an uproar in the industry, leading to a run on the Saigon Commercial Bank (SCB), Vietnam's fifth-largest bank.
Subsequently, the governor of the Central Bank of Vietnam, Nguyen Thi Hung, urgently clarified that Saigon Commercial Bank had confirmed that Zhang Meilan did not hold a management position in the bank, and Zhang Meilan's related enterprises were not shareholders of the bank, and Zhang Meilan's arrest would not affect the normal operation of SCB Bank.
Nguyen further said that "necessary measures" had been taken to ensure the liquidity of Saigon Commercial Bank. At the same time, Saigon Commercial Bank also urgently raised deposit interest rates to retain depositors.
Under a series of measures, the run on Saigon Commercial Bank was calmed down.
It is worth mentioning that under the regulatory storm in Vietnam, in addition to Zhang Meilan, the arrested real estate bosses are Du Yingyong, chairman of the new Huangming Group, and Zheng Wenju, chairman of FLC Group.
As Vietnam's policy and financial conditions continue to tighten, the market is speculating which real estate company will be the next thunderstorm in Vietnam.
Responsible editor: Tactical Heng
Proofreader: Su Huanwen
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