According to China News Agency, citing Japan's Kyodo News Agency, after the last central bank interest rate meeting in April, the Bank of Japan announced the latest interest rate decision to maintain the benchmark interest rate at 0-0.1%, and did not take the quantitative tightening expected by the outside world, resulting in the yen sell-off in the foreign exchange market intensified again.
This was followed by a depreciation of the yen. On April 29, the yen briefly fell below 160 yen to the dollar, the lowest level in 34 years.
In addition, the exchange rate of the local currencies of many countries such as the South Korean won, the Indian rupee, and the Indonesian rupiah has also fallen sharply against the US dollar recently, which has raised concerns about the stability of the capital markets of emerging economies.
The yen once fell below 160 to 1 against the US dollar (Source: CCTV News)
Some experts believe that the reason for the relatively large decline in the yen is related to the relatively high inflation in the United States and Japan's own economic problems.
Why did the yen plummet against the dollar
The current round of yen depreciation actually began in early 2022, and as the interest rate differential between the yen and the dollar widened, the yen exchange rate plummeted: at the beginning of 2022, the dollar was around 115 yen, and by October of the same year, it fell to nearly 152, a decline of more than 30% during the period. The Japanese government was forced to intervene three times to boost the yen exchange rate by selling dollars and buying yen.
In March 2024, the Bank of Japan (BOJ) announced the end of its eight-year negative interest rate policy, but only raised its policy rate from minus 0.1% to a range of 0 to 0.1%, while pledging to continue accommodative monetary conditions. The tightening was not as severe as the market expected, which only exacerbated the depreciation of the yen.
Exterior view of the headquarters of the Bank of Japan (Source: Xinhua News Agency)
Wang Jinbin, deputy dean and professor of the School of Economics of the Chinese People's University, said to the media that there are several main reasons why the yen has fallen sharply in stages. First, inflation in the United States is relatively high, and the Fed's tightening monetary policy may last longer. On the other hand, there is the problem of Japan's own economy, and it can be seen that Japan's overall economic expectations this year are not optimistic, so even if the Bank of Japan changed the negative interest rate policy to a zero interest rate policy in March this year, it cannot enter the interest rate hike cycle, so the yields in the Japanese market and the U.S. market are expanding, which is the basic reason for the depreciation of the yen.
Hu Jie, a professor at Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University and a former senior economist at the Federal Reserve, said that because the market had overestimated the strength of the Bank of Japan to raise interest rates. The Bank of Japan (BOJ) turned Japan's benchmark interest rate from negative to positive in March, albeit by a small margin, and expressed extreme caution about whether to raise interest rates further in the future, prompting the market to find that expectations of higher yen interest rates since the second half of 2021 were overly optimistic, leading to this wave of yen depreciation.
The electronic screen at the Seoul headquarters of South Korea's Hana Bank is displaying exchange rate information (Source: Reference News)
Multinational currencies are "in trouble"
The yen isn't the only currency that's been in trouble lately. At the end of 2023, the South Korean won was close to 1,300 won to the dollar, and it has now fallen to nearly 1,380 won to the dollar. On April 16, it once fell below the 1,400 won mark in intraday trading.
At the same time, a number of other Asian currencies have shown similar trends. Asian currencies such as the Indian rupee, Indonesian rupiah, Malaysian ringgit, Vietnamese dong and Philippine peso have all continued to walk out of the downward curve. Bank Indonesia recently raised three main interest rates by 25 basis points to "strengthen the stability of the rupiah exchange rate". Analysts questioned the effectiveness of the measure, as Bank Indonesia's repeated intervention in the market failed to prevent the rupiah from depreciating by more than 5% from its level at the beginning of the year.
At the G20 Finance Ministers and Central Bank Governors meeting, the Brazilian presidency expressed concern about the dollar's appreciation. Japan, the United States, and South Korea also issued a joint statement on the depreciation of the yen and the South Korean won before the meeting, saying that they were "seriously concerned."
When talking about the depreciation of many Asian currencies, the vast majority of analysts attribute the reason to the "strong dollar". The US Federal Reserve's keeping its benchmark interest rate high, coupled with ongoing geopolitical tensions in recent years, has led to global capital flows to the dollar.
Many analysts also said that in recent years, the US monetary policy has been radical and changeable, and the fiscal policy has "eaten more than it can eat", taking advantage of the dominance of the US dollar to reap global wealth and pass on the crisis, which has constantly triggered turmoil in the international market.
US dollars (Source: CCTV)
The U.S. dollar index rose
In contrast to the continued depreciation of the yen, the dollar index is rising. Niu Wenxin, chief commentator of China Economic Weekly, believes that the rise of the dollar index is not necessarily because of how strong the US economy is, but also because the economy of the euro, the British pound, the Japanese yen, the Canadian dollar and other six basket currency countries is weaker than the United States, especially the euro, which accounts for 57.6% of the dollar index, and the euro zone economy is particularly weak under the long-term suppression of the energy crisis, which is of course the key factor stimulating the rise of the dollar index.
Niu Wenxin said that since the yen accounts for the second largest proportion of the dollar index, there is another possibility: the depreciation of the yen is more like a "vote" for the rise of the dollar index. The U.S. is trying to achieve control over other countries through large-scale acquisitions, and in this way, it is an attempt to "reindustrialize" or "re-control global manufacturing" of the United States.
All along, the United States has been trying to "eat" China to feed its unprecedented "hunger". Niu Wenxin said that if the United States harvests successfully, the dollar and other six currency countries' currency bubbles will be filled with China's industrial assets, especially the dollar, "China's manufacturing capacity + American scientific and technological capabilities" is bound to make the United States invincible and maintain its position as the global leader. So, we have to be very vigilant. We must not only beware of hungry tigers and wolves that may pounce at any time, but also beware of our internal "misconceptions".
Recently, Zhou Mi, a researcher at the Academy of International Trade and Economic Cooperation of the Ministry of Commerce, also said that for international trade, it is not only about short-term changes, but also about long-term impacts. At present, the continued appreciation of the US dollar is more favorable to China's export situation, but the cost of imports will also increase. In the future, it is necessary to consider how to reduce the impact of exchange rate fluctuations on trade, consider using currencies other than the US dollar, promote the internationalization of the RMB, increase the use of RMB, reduce the risk of enterprises in international trade, and enhance the "resilience" of Chinese enterprises in international trade. (Jimu News)