If the Bank of Japan says "no matter", the yen will no longer be able to hold on.
Over the past 24 hours, USD/JPY has continuously fallen below the round figure mark of 156, 157 and 158. International investors are betting heavily on a weaker yen, and it will be interesting to see when the Japanese government intervenes in the exchange rate.
How big is the impact of the yen's "collapse"?
USDJPY (December 2023 to date)
Japan Ōgyo Sleeve Hand 旁观 日元加速下跌
USDJPY's breakthrough of 155 was once seen by the market as an important threshold for the Japanese government to intervene, but the Bank of Japan seems to have no intention of doing so.
On Friday, the Bank of Japan announced its latest interest rate decision to keep the benchmark interest rate at 0-0.1%. Ahead of the decision, some economists expected a hawkish message from the Bank of Japan to support the yen. However, the Bank of Japan still issued a more dovish statement. The Bank of Japan said it expects the current accommodative financial conditions to continue, saying that "financial conditions have been accommodative." If the price trend rises, the level of monetary easing will be adjusted.
After the decision was announced, USD/JPY rose nearly 50 points in the short term, and the USD/JPY pair broke through 156, up 0.24% during the day. At the same time, EURJPY, GBPJPY, and AUD all hit multi-year highs.
After the announcement of the interest rate meeting, Bank of Japan Governor Kazuo Ueda barely expressed support for the yen at the press conference.
Kazuo Ueda said he would closely monitor exchange rate fluctuations and their impact. He said that the exchange rate is an important factor affecting inflation, and if it affects prices, then the exchange rate will be taken into policy considerations. However, the depreciation of the yen has not yet had a significant impact on core prices, and a weaker yen has a positive impact on demand.
"If the yen's movements have an impact on the economy and prices that are difficult to ignore, it could be a reason for monetary adjustment, and at the moment, the weakness of the yen has not had a significant impact on underlying inflation. He said.
Compared with Kazuo Ueda, the statement of Mato Kanda, Vice Minister of Finance, who is directly responsible for managing the yen exchange rate, is intriguing.
In a commentary last week, Kanda said USDJPY at 157.6 is a key level to watch. Earlier, he said that the Ministry of Finance would not sit idly by and ignore the weakness of the yen.
Earlier this month, Mato Kanda said in a public speech that excessive exchange rate movements are bad for the economy, and that "we are making a comprehensive judgment on the direction of the yen overnight, taking into account fundamental factors." I can't tell you if it's overdone. He said the benefits of a weak yen are diminishing and the market has been moving fast lately. "Some people benefit, some people get hurt, but there is no doubt that the benefits are diminishing," Kanda added. It's no longer necessarily a matter of benefiting businesses. ”
Earlier this month, the finance ministers of the United States, Japan and South Korea issued a joint statement saying that policymakers were watching the currency market and agreed to "close consultations." Japan and South Korea added language to the statement that they were "concerned about the depreciation of their currencies," underscoring the political pressures they are currently facing from weaker exchange rates and rising inflation.
Masato Kanda is believed to be directly responsible for the 2022 entry of the Ministry of Finance to intervene in the yen exchange rate.
In 2022, Japan's Ministry of Finance spent about 9.2 trillion yen (about $60.6 billion) to support the yen exchange rate three times. Japan's Ministry of Finance's purchase of yen is the first time since 1998 that the Japanese government has intervened in the foreign exchange market to support the yen. Before the Japanese government intervened in the foreign exchange market at that time, the yen exchange rate plummeted to 151.95 yen per dollar. But the effect of the intervention in the market was immediate, and in the last two months of 2022, the USDJPY fell from 151 to around 127. However, as the Federal Reserve continues to raise interest rates and Japan's ultra-loose monetary policy continues, the yen is moving further and further down the road to depreciation. Entering 2023, the yen is once again on a depreciating path.
Investors are betting big
On the eve of the Bank of Japan meeting, traders increased their short positions in the yen. As of Tuesday, bets by hedge funds and asset managers on the yen's continued depreciation totaled 184,180 contracts, the highest since 2006 by the Commodity Futures Trading Commission.
In addition, rising demand for the yen to sell contracts against the US dollar and the euro pushed the yen to new lows this week, according to data from the Depository Trust and Clearing Corporation. On April 24, options purchases, including the sale of yen at 156 yen per dollar, totaled $300 million, putting pressure on the yen in the spot market.
Japan's currency has depreciated nearly 11% against the dollar year-to-date, the worst performance among G10 currencies. The factor driving the depreciation is the large gap between U.S. interest rates and Japanese interest rates. U.S. interest rates reached their highest level in decades after the Federal Reserve's aggressive tightening cycle last year, while Japan's borrowing costs remain stubbornly low near zero.
Charu Chanana, strategist at Saxo Capital Markets, said: "The Bank of Japan has once again demonstrated that its dovish attitude can surprise even the most dovish expectations on Wall Street. We are again waiting for interventions to stop the yen from plummeting. But no intervention looks like it can stop the yen from falling for now. ”
Hirofumi Suzuki, chief monetary strategist at Sumitomo Mitsui Banking Corporation, said: "If the yen falls further, as it did after the Bank of Japan's decision in September 2022, the likelihood of intervention will increase. ”
Piotr Matys, a forex analyst at InTouch Capital Markets, believes that the current interest rate hike makes more sense than foreign exchange intervention. Although he believes that this is unlikely to happen, he said: "The most effective way to stabilize a battered currency is to surprise the market by raising interest rates." ”
The trade deficit has increased and the number of tourists has returned to normal
The depreciation of the yen has directly led to an increase in Japan's trade deficit, but at the same time, tourists to Japan, especially from Europe and the United States, are gradually returning to pre-pandemic levels.
According to the preliminary statistics released by the Ministry of Finance on the 17th, Japan's trade deficit in fiscal year 2023 (April 2023 to March 2024) decreased by about 70% from the previous fiscal year to 5.89 trillion yen (1 US dollar is about 154 yen). This is the third consecutive fiscal year in which Japan has run a trade deficit.
According to the data, in fiscal 2023, Japan's imports decreased by 10.3% from the previous fiscal year to 108.79 trillion yen, the second highest import value in history after the previous fiscal year, due to the strong demand for automobiles in overseas markets, and Japan's exports increased by 3.7% to 102.9 trillion yen, a record high, due to strong demand for automobiles in overseas markets.
Earlier, the media and experts said that the sharp depreciation of the yen was the main reason for Japan's continued trade deficit.
In fiscal 2022, Japan's trade deficit was 21.73 trillion yen, the highest ever recorded, due to high energy prices and a sharp depreciation of the yen.
At the same time, there has been a significant recovery in the number of tourists visiting Japan.
According to data recently released by the Japan National Tourism Organization, the number of foreign tourists (estimated value) to Japan in 2023 will increase by 650% year-on-year to 25.0661 million. The number of annual tourists has recovered to 80% of the historical peak of 31.88 million in 2019.
An important factor contributing to the rapid rebound in the number of tourists to Japan is the depreciation of the yen. In 2019, before the pandemic, the exchange rate was around 110 yen per dollar, but recently it has hovered around 150 yen. Being able to enjoy delicious food and attentive service at lower prices than before the pandemic has made Japan a popular destination for foreign tourists.
In terms of countries and regions, South Korea has the largest number of visitors to Japan, with about 6.95 million visitors. This is followed by Taiwan (about 4.2 million), Chinese mainland (2.42 million), Hong Kong (2.11 million), and the United States (2.04 million). Chinese mainland tourists accounted for almost one-third of the total number of tourists before the pandemic, so the key to the Japanese government's goal of achieving more inbound tourists than in 2019 by 2025 is the recovery of Chinese mainland tourists.
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Proofreading: Ran Yanqing
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