While the world economy is changing, and while people are still immersed in the hope of recovery in the post-epidemic era, another undercurrent crisis is quietly coming.
Recently, the global liquidity run triggered by the tightening of monetary policy by the United States is setting off a financial tsunami that has swept the world.
Japan, the hardest-hit economy, is once again on the verge of collapse, with the yen hitting record lows against the dollar. At the same time, gold, a traditional safe-haven haven, has lost its sights, with prices falling all the way to multi-month lows.
When the Pearl of the Orient is eclipsed, what kind of bloody storm will be set off by Wall Street's big gambles? Let us see through the surface of the financial market what happened in this crisis?
1. The road to recession in Japan's economy
When people think of the Japanese economy, the label "lost two decades" often comes to mind.
Since the bursting of the bubble economy in the 90s, Japan's economy has been in a decades-long downturn. The fundamental reason for this situation is that Japan has missed the critical window period for transformation and upgrading.
For a long time, Japan's economy has relied heavily on an export-led growth model. On the one hand, Japan's domestic market is relatively small, and the growth of domestic demand is sluggish.
On the other hand, Japan's industrial structure has long been locked in the low-end manufacturing industry, lacking the support of high value-added industries. This economic structure, which is dependent on external difficulties and internal difficulties, is destined to make it difficult for Japan to extricate itself from the troubles of cyclical crises.
Since the beginning of the 21st century, the global financial crisis and the European debt crisis have followed one after another, dealing a heavy blow to Japan's export-oriented economy.
With the rise of emerging market countries, with demographic dividends and factor cost advantages, Japan's export competitiveness has also been continuously eroded. Under the internal and external attacks, Japan's economic growth momentum continues to be sluggish.
In recent years, the Japanese government has frequently tried to boost the economy through large-scale fiscal stimulus and loose monetary policy. However, with little success, the Japanese government debt remained high and the BOJ's balance sheet swelled sharply.
As the Federal Reserve accelerated its interest rate hikes and safe-haven funds withdrew, the yen exchange rate was overwhelmed, falling to a multi-decade low of 150 yen per dollar.
Although the sharp depreciation of the yen is good for exports, it has exacerbated inflationary pressure on Japan's imports, which not only weakens the purchasing power of the people, but also worsens the situation of Japan's real economy.
The economic downturn, a weak currency, and the heavy burden of an aging population have brought Japan's economy to the brink of collapse.
If we do not completely change the way of thinking about economic development and embark on the road of innovation-driven and domestic demand-driven transformation, Japan's giant ship may never return.
Let's take another look at how the United States, on the other side of the ocean, is pushing Japan into the abyss.
2. The tragedy of gold under the hegemony of the US dollar
Since the collapse of the Bretton Woods system and the decoupling of the dollar from gold, the dollar has become the cornerstone of the international monetary system with the strong economic power of the United States and its free and open financial markets.
And as the other side of the dollar, gold has also been endowed with the sacred halo of a safe haven. For a long time, gold prices have tended to rise whenever turmoil hits and risk aversion rises.
However, this iron law no longer works. Since the beginning of the year, in the face of increasingly severe inflation, the Federal Reserve has urgently reversed its policy course and launched a new round of aggressive interest rate hikes.
The U.S. dollar index rebounded strongly, breaking through the 120 mark in one fell swoop and hitting a new 20-year high. The strength of the dollar has been accompanied by a steady decline in the price of gold. The international gold price fell below $1,700 an ounce at one point, falling to a multi-month low.
The fundamental reason why gold has lost its former glory is that the strong position of the US dollar is unshakable. At present, the global economic recovery is slow, geopolitical conflicts are occurring one after another, and the divergence of monetary policies in major economies is intensifying.
In turbulent times, the US dollar has become a safe haven for countries by virtue of its status as an international reserve currency.
This, coupled with the relatively solid fundamentals of the U.S. economy, has yielded far more Treasury bonds than other advanced economies, making the U.S. dollar a veritable magnet.
With such a strong US dollar, other financial assets are naturally eclipsed, and gold is not immune to its doom.
In fact, the current weakness in the price of gold reflects investors' deep worries about the future economic outlook.
On the one hand, the haze of global stagflation is difficult to dissipate, and the risk of economic recession is rising, which has hit market risk appetite. On the other hand, major central banks have raised interest rates sharply and real interest rates have rebounded, depriving gold of its comparative advantage as a non-interest-bearing asset.
Under the pressure of risk aversion and real returns, the demand for gold plummeted, and the price plummeted.
The Fed is expected to maintain its hawkish stance, and the foundation for the dollar's strength remains solid. Under the hegemony of the dollar, gold is afraid that it will suffer even more.
It is worth noting that once the U.S. economy makes a hard landing and stagflation worsens, the Fed will be forced to pivot, and gold prices are expected to usher in a rebound.
epilogue
At present, the world economy is at a juncture of turbulent change. From Japan to the United States, from the exchange rate to the price of gold, all reflect the severe challenges that the global financial market is facing.
The dominance of the US dollar has made other economies miserable and has laid huge risks for the world economy. Looking ahead, countries should strengthen policy coordination and jointly safeguard global financial stability.
At the same time, we should also focus on the long term, cultivate new opportunities in the crisis, and open a new situation in the changing situation. Only by establishing a more balanced, inclusive and sustainable world economic order can human society get out of the current predicament and create a better tomorrow.
For ordinary investors, in the turbulent financial market, it is necessary to maintain concentration, in-depth study and judgment of the situation, and grasp the rhythm and intensity of asset allocation, so as to pass through the cycle and achieve the goal of wealth preservation and appreciation.
After all, opportunities and risks have always been accompanied, and only those who struggle can move forward without fear and have the last laugh.