Since March, the yen has become the most closely watched currency in the world. Even in Chinese mainland, many investors are paying more attention to the yen than the renminbi. On 24 April, the yen continued its weakness against the US dollar, standing above 155 for the first time since June 1990. On the 25th, the yen is heading towards 156 against the dollar.
The yen accelerated its decline amid interest rate hikes
A speculator in Chinese mainland told the first financial reporter: "Because of the bet on the Bank of Japan to raise interest rates, the yen may rise, so I hoarded a little yen in advance for appreciation, bought 18 million yen, at that time it was 4.82 (100 yen can be exchanged for 4.82 yuan), but did not expect the yen not to rise but fall, getting weaker and weaker, I expected the Bank of Japan to intervene, but I did not see the real entry, and the yen deposit has almost no interest, and I am struggling with whether to sell a stop loss." ”
In addition, a number of Japanese real estate investors told reporters that in the past two years, Japan's housing prices have appreciated, and many Japanese real estate agents have begun to recommend investing in Japanese real estate.
On April 24, the yen stood above 155 against the US dollar for the first time since June 1990, down 5.5% from 147 before the Bank of Japan raised interest rates, and the yen has depreciated by nearly 4% against the yuan in the past three months.
With a weak yen and the Bank of Japan on the one hand, and a rebounding dollar and falling expectations for the Fed to cut interest rates, the yen's weakness seems to be over yet.
In fact, most of the influx of speculators was at the beginning of the year, when expectations of a rate hike by the Bank of Japan began to heat up, and the yen soared from around 150 to 147 against the dollar. But no one expected that this would already be the highlight of the yen.
On March 19, the Bank of Japan (BOJ) announced a new era of monetary policy, with YCC (yield curve control) and negative interest rates both exiting, and the central bank will stop buying ETFs and J-REITs, although it will continue to buy government bonds. Since the interest rate hike has already been priced in by the market, the statement of continuing to buy government bonds is more dovish than expected, and the market does not believe that the central bank will continue to raise interest rates this year, so the yen does not rise but falls.
In the past two years, Japan's inflation has rebounded, and the economy has also shown a positive trend, which is also the basis for interest rate hikes. Jerry Chen, a senior analyst at Jiasheng Group, told reporters that in terms of prices, the ultra-loose monetary policy has failed to help Japan get out of deflation for more than 20 years, but the surge in energy prices during the epidemic has unexpectedly pushed prices up, making inflation higher than the central bank's 2% target for the past 22 months; , but it's the best performance in two years.
At present, wages are on the upward trend, and the rise in prices seems to be a virtuous circle. Hou Suhan, deputy general manager of the research department of Nomura Oriental International, said in an interview with Yicai a few days ago that the Japanese stock market received a net inflow of about 3 trillion yen from overseas investors last year. Different from the imported passive inflation in 2022, enterprises will continue to raise prices in the environment of declining raw material costs from 2023, and at the same time, enterprises will begin to actively implement wage increases, and the purchasing power of the household sector will increase, which will support enterprises to further raise prices, and a virtuous circle will gradually form.
However, the deflationary mentality that has persisted for a long time, the aging trend that is difficult to reverse, and Japan's tendency to promote exports through currency depreciation will make it difficult for the Bank of Japan to raise interest rates significantly in the short term. In addition, the yield on US Treasury bonds remained high, with the yield on 10-year US Treasury bonds reaching nearly 4.6%, and the spread between Japanese and US interest rates reaching nearly 4 percentage points, causing the yen bulls to lose.
Shigeto Nagai, head of Japanese economic research at the Oxford Institute of Economics, told reporters that the Bank of Japan is expected to cautiously raise the policy rate to 1% by 2028. This also means that the magnitude of interest rate hikes is very limited, and it will be difficult to narrow the interest rate differential between Japan and the United States.
"We have raised our benchmark inflation forecast, given the assumption of a strong wage deal this year and a weaker yen. CPI inflation is expected to rise gradually after a moderation in mid-2025 and stabilize at just below 2% in 2027, but downside risks remain significant. Shigeto Nagai said. Depending on how wage increases transmit to service prices, the next rate hike is likely to occur in the second half of 2024. Nonetheless, the BOJ is hesitant to raise its policy rate if household income and consumption remain stagnant due to significant downside risks in the price outlook, particularly wage increases and the sustainability of pricing power.
USD/JPY heading towards 160?
As the yen continues to fall, many investment banks have recently begun to raise their targets on USD/JPY. UBS recently raised its forecast for USD/JPY at the end of June and December to 155 and 148 from 148 and 143 previously.
The Japanese government has yet to physically intervene in the exchange rate, slightly disappointing the market, although the U.S., Japanese and South Korean finance ministers expressed serious concerns about the yen's recent sharp depreciation in a joint statement issued last Wednesday.
In fact, investment banks are generally more conservative in their forecasts for the yen, but professional traders are more bearish on the yen.
Matt Weller, global head of research at StoneX, told reporters: "We haven't heard anything [of intervention] other than the clichés of Japanese policymakers." "In the eyes of most traders, if it weren't for the fact that traders were hesitant about a potential intervention by the Bank of Japan, the yen might have been approaching 160 against the dollar.
"But for now, it seems that the Bank of Japan only wants to control the speed of the yen's depreciation, not to reverse the yen's depreciation, after all, the depreciation of the yen is beneficial to Japan's exports, such as the semiconductor industry and the automobile industry. A trader from a foreign bank told reporters.
"From a technical point of view, 160 is not out of the question if the Japanese authorities do not intervene and the yen continues to depreciate, but if the yen appreciates, direct intervention, a hawkish BoJ meeting will be needed to limit the USD/JPY rally this week," Weller said. ”
With the recent upbeat overall economic data, the Fed's postponement of interest rate cuts has become the baseline scenario (as early as September), and even calls for rate hikes are gradually emerging, so this week's inflation data may cause an asymmetric market reaction, i.e., the impact of higher-than-expected inflation data (bullish for the dollar) may be greater than weaker-than-expected data (bearish for the dollar).
Ahead of the May 1 meeting, the Fed was in the usual period of public silence, but ahead of the start of the silence period, officials, including Fed Chair Jerome Powell, noted that they would like to see a sustained decline in inflation data before they are confident enough to start cutting rates.
(This article is from Yicai)