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While the eyes of the world are focused on the game between the monetary policies of various countries and the global financial markets, the movement of the yen is particularly eye-catching.
Recently, the yen has continued to be under pressure, which not only has an impact on the domestic economy, but also affects the sensitive nerves of international relations.
Against this backdrop, the Bank of Japan's strategy and actions have become the focus of heated discussions.
Faced with the dilemma of the yen being shorted, the Japanese government seems to have reacted unusually cautiously, not daring to rashly sell US bonds or raise interest rates.
What kind of considerations and helplessness are hidden behind this posture?
The continued depreciation of the yen has touched a number of sensitive nerves in the Japanese economy.
In the face of fierce short-selling of the yen in the international market, the Japanese government and the central bank seem to have reacted unusually passively.
It has been observed that the yen has broken through several thresholds against the dollar in just a few months, hitting a minimum of a low not seen since 1990.
This volatility is not just a numbers game in the currency market, but also a reflection of the deep dilemma of economic structures and policy choices.
As the world's third-largest economy, Japan has a huge amount of foreign exchange reserves, including a large number of US dollar assets and US Treasury bonds.
Theoretically, Japan is fully capable of intervening in the market and stabilizing the yen exchange rate by selling some of its U.S. bonds.
However, the potential reaction of such an operation to international financial markets and the potential impact on U.S.-Japan relations will require the Japanese government to weigh its decisions on multiple fronts.
First, the depreciation of the yen is good for Japanese exports in the short term.
However, in the long run, it may exacerbate domestic inflationary pressures and affect the cost of living for Japanese citizens.
In addition, as one of the important international reserve currencies, the stability of the yen's exchange rate has a certain influence on the global financial market.
Therefore, the Bank of Japan must take into account the wide range of domestic and foreign influences when deciding whether or not to intervene in the market.
Second, selling U.S. bonds to intervene in the exchange rate, while seemingly a straightforward and effective tool, could have double-edged consequences.
On the one hand, large-scale selling of U.S. bonds may lead to a decline in bond prices, further affecting the stability of the U.S. bond market.
On the other hand, it could also trigger a ripple effect on US bonds in other countries, triggering broader market volatility.
Moreover, the economic and security ties between Japan and the United States are so close that any large-scale fiscal maneuver could be seen as a test of that relationship.
Rate hikes as another possible means are equally controversial.
While a modest rate hike may help boost the yen and curb the pace of currency depreciation.
However, for the Japanese economy, which is still in the recovery stage, too rapid interest rate hikes could dampen consumption and investment, affecting economic growth.
Especially against the backdrop of slowing global economic growth, raising interest rates too quickly could make the pace of economic recovery more difficult.
What do you have to say about this? Feel free to leave your thoughts in the comment section!