In the past two days, the currencies of Asian countries such as China, Japan, South Korea, India, and Vietnam have pulled back a lot, and two of them have impressed me.
The first is the Japanese yen, which has fallen miserably.
On April 26, the yen depreciated by 1.71% in just one day, reaching 158.42, and on April 29, the yen opened straight to the 160 integer mark.
This trend is simply out of a kind of "bankrupt" country.
The second is China's renminbi, which is worthy of being Asia's anchor.
In the past few days when the entire Asian currency has been correcting, the yuan has resisted the pressure and only fluctuated in a narrow range of 7.26.
This has also given rise to optimistic expectations that China's stock market, real estate and other RMB assets will stabilize and rise.
Could it be that the United States' habitual method of raising interest rates and cutting interest rates this time has turned its guns on its own yen after the renminbi has not moved the yuan?
The answer is that it is really possible, and the logic can be explained from the perspective of the yen and the yuan.
Let's start with the yen.
Since 2012, the yen has been quietly depreciating, but in the past few days it has hit a new low since the bubble period of the 90s, which has attracted a lot of attention.
There are three main points for the depreciation of the yen, and all of them are tricky.
The first point is Abenomics.
In 2012, and back to the Plaza Accord in 1985, the Japanese government intervened in the exchange rate directly, using foreign exchange to buy yen and sell dollars.
Therefore, the yen has been appreciating in the general direction.
Over the past 20 years, the US dollar has appreciated against the yen from above 250 to below 80, more than three times. (See image below)
As a result, Japan's economic growth has fallen into a long-term slump, and it has been lost for 20 years.
▲Data source: wind
In 2012, Abe came to power and launched Abenomics in order to revive the Japanese economy and exert political ambitions, the core of which is monetary easing.
Continued quantitative easing and continuous monetary deflection have depreciated the yen.
In this way, it will enhance the competitiveness of exports and reverse domestic inflation expectations.
As a result, the BOJ's balance sheet has been expanding, from around 120 trillion yen to almost 760 trillion yen. (See image below)
In 12 years, the Bank of Japan's leverage has increased by more than 6 times, far exceeding the 3 times that of the United States.
If you count the currency multiplier, it is impossible to count the over-issuance of currency in Japan as a whole.
It is particularly worth noting that after March 2022, European and American countries have raised interest rates and reduced their balance sheets, which means tightening the water that has been released.
And Japan is still releasing water, how can the currency not depreciate?
▲Data source: wind
The second point is the interest rate differential between Japan and the United States.
In March this year, Japan officially raised interest rates after more than 10 years of negative interest rates, but the yen market saw a wave of rapid depreciation.
The key point is that although Japan has ended negative interest rates, it has ended the continued purchase of Japanese stock ETFs and ended YCC.
However, we will continue to buy government bonds in 4000~500 billion yen in 4 installments in April, and we will continue to buy government bonds, such as 4000~500 billion yen.
In other words, Japan will continue to keep long-term government bond rates low.
Coincidentally, Japan's "fake interest rate hike" happened to catch up with the "fake interest rate cut" of the United States, which strengthened the expectation of arbitrage space between Japan and the United States.
The Fed has not yet made up its mind to start a cycle of interest rate cuts, and both the dollar and U.S. bonds are risk-free high-interest assets.
As a result, there will inevitably be a large amount of money borrowed from low-interest yen, locked in the exchange rate difference, and then exchanged for high-interest products such as US dollars or US bonds;
This flow of international capital is manifested in the fact that the price is to sell the yen and buy the dollar, which also exerts depreciation pressure on the Japanese exchange rate.
▲Data source: Huatai Research
Third, the trade deficit.
Behind the exchange rate is actually trade.
The stronger the trade, the stronger the demand for the goods in other countries, and the stronger the domestic currency tends to be supported.
On the one hand, there is a high demand for imports from Japan.
Japan imports a large amount of oil, natural gas, coal, and food all year round. Japan's depreciation has made it more expensive to import these goods.
Japan's imported inflation has led to a rapid rise in the production costs of Japanese SMEs, while it is difficult for prices to be transmitted downstream, and the number of bankruptcies has surged.
On the other hand, Japan's exports have not been going well in recent years.
There are reasons for the deterioration of the international environment, reasons why Japan once again missed new energy vehicles and artificial intelligence, and reasons why Japan is deeply bound by the United States.
As a result, Japan has a large amount of imports and a small amount of exports, resulting in a trade deficit for many years.
Over time, the attractiveness of the yen to the international market decreases.
Next, let's talk briefly about the renminbi.
The renminbi has not only been very resistant to falling in the recent wave of Asian currencies, but has also performed strongly in the extended cycle.
The renminbi appreciates against the Korean won, against the Thai baht, against the yen, against the ruble, and many, many more...
Among them, the appreciation of the renminbi against the yen is the most obvious.
In 2019, 100 yen to the yuan was around 6.8, and now 100 yen to the yuan is about 4.5.
In five years, the renminbi has appreciated by almost 30%, which translates to a stable appreciation of 7 or 8 percentage points almost every year.
It's no wonder that recent Japanese tourism and Japanese purchasing have become popular again.
After eating, drinking, and having fun in Japan, I found that I didn't spend much money when I returned home.
From the earlier 90s, 100 yen to the yuan has more than 10, indicating that the yuan has appreciated more than 1 times.
▲Data source: wind
Why is the renminbi so strong?
There are three points.
First, China's trade is strong.
Trade is an important fundamental factor that affects a country's currency exchange rate, and China's long-term trade surplus is the greatest confidence for China's currency stability.
I can also give a more positive example.
Can you think of which country has been the strongest currency in recent years?
The answer is, Mexico.
For some indescribable reasons, Mexico became the most important trading partner of the United States in 2023.
China and the United States invested heavily in Mexico, and Mexico exported a large amount of trade to the United States, achieving a new high trade surplus.
The Mexican currency, the peso, is very strong, not only against the yuan, but also against the dollar. (See image below)
Source: XE
Second, China is selling US bonds and at the same time buying gold to reduce its dependence on the US dollar.
The third point is that the Chinese people's currency has gradually transitioned from being mainly external to being mainly internal.
The "anchor" of the renminbi has gradually transitioned from the previous reference to the WTO foreign exchange appropriation (US dollar) to the reference real estate mortgage loan, and then to the reference treasury bond issuance in the future.
In short, the renminbi is becoming more and more detached from the dollar currency, while the yen is becoming more and more dependent on the dollar currency, which is at the heart of the divergence of currencies in Asia and around the world.