At the beginning of 2024, global financial markets ushered in tremendous volatility.
The strong performance of the U.S. economy, especially the data released in mid-April, showed that the U.S. consumer price index (CPI) rose 3.5% year-on-year in March, and retail sales rose 0.7% month-on-month, both exceeding market expectations.
Such data shows that the economy remains dynamic despite inflationary pressures in the United States. This has a direct impact on the Fed's policy direction.
In order to combat the persistent inflation problem, the Federal Reserve has decided to adopt a more aggressive monetary policy.
While the Fed is widely expected to cut interest rates, in fact, the Fed has signaled that it will not rule out another rate hike in 2024 if inflation is difficult to control.
This policy move immediately affected global currency markets, especially in Asia.
First and foremost is Japan.
Japan's economy is dependent on exports, and a strong yen is not good for exports.
With the strengthening of the dollar, the Bank of Japan and the Minister of Finance have frequently intervened and warned to no avail.
The yen's exchange rate against the US dollar has fallen rapidly this year, once falling below the 153 mark, and the cumulative depreciation for the year has reached 9%.
At the same time, the situation in South Korea is similar.
The South Korean won depreciated by 7% against the dollar, indicating the weakness of Asian currencies in general.
In this wave of currency depreciation, China's renminbi has shown relative stability.
Although it is also facing depreciation pressure, the depreciation of the renminbi is much smaller and within the control range.
Analysts point out that a key factor in China's ability to withstand external shocks is its monetary policy independence and abundant foreign exchange reserves.
This allows China to maintain the relative stability of its exchange rate through a series of measures against the backdrop of global currency depreciation.
Exchange rate problems in Japan and South Korea have affected their economies and pose a threat to financial stability across the region.
China's performance provides a certain sense of reassurance to the market, but the direction and future of this defense battle are still full of uncertainties.
The Japanese government and the central bank have carried out a series of interventions in an attempt to stabilize the yen exchange rate. This includes going directly into the currency market to buy yen, trying to support the value of the currency by increasing demand.
They also try to boost market confidence through policy advocacy to ensure that investors don't panic sell their currencies.
South Korea has responded in a similar way, with the Bank of Korea not only intervening frequently in the market, but also supporting the won by raising the key interest rate to attract foreign investment.
However, none of these measures have been as effective as expected, and market worries remain high.
China, meanwhile, has taken a more cautious and diversified approach.
China's central bank not only regulates interest rates, but also uses its large foreign exchange reserves to balance market supply and demand and ensure the stability of the renminbi exchange rate.
The Chinese government's macroeconomic control has also played a key role in maintaining the stability of the economy and financial markets by adjusting the money supply and interest rate policies.
The strategies and outcomes of this currency defense war vary from country to country, but they all reflect the fact that independent and flexible monetary policy is the key to maintaining economic stability in global financial markets.
This series of currency fluctuations has a direct impact on the economic development of countries and the lives of people. example
For example, the depreciation of the yen and the South Korean won has increased the cost of imports in these two countries, which could lead to an increase in domestic prices, which in turn affects the daily lives of ordinary people.
The weakness of the currency has also affected the international trade position of these countries.
Although export products are more competitive in the international market due to currency depreciation, the rising cost of imports has also compressed the profit margins of enterprises.
This is particularly evident in Japan and South Korea, where strong exports drive their economic growth.
China needs to maintain economic stability at home and maintain the credibility and value of its currency in the global economy.
Through effective policy adjustments and market interventions, China has demonstrated its influence and strategic wisdom in the global economy.