On April 26, the exchange rate of 1 dollar against the yen fell sharply to 158 yen in the New York foreign exchange market, depreciating by more than 11% from the beginning of the year and hitting a new low since May 1990. At a time when the economy was hit hard, the Bank of Japan made a rare attempt to rescue the market, seemingly turning a blind eye to this grim situation and choosing to "lie flat".
This news has undoubtedly set off a heated discussion in public opinion. On the one hand, it questioned the role of the Bank of Japan and whether it was feasible to intervene in the foreign exchange market. On the other hand, it pointed the finger at US-Japan relations and wondered whether the United States had "locked up" Japan's deal with China, forcing Japan to "obediently comply."
Some people have even begun to speculate that if Japan's economy is sluggish, will it repeat the mistakes of the 90 s and transfer internal contradictions by launching an external war? For a time, all kinds of speculations and speculations have come and gone. So what's going on? Let's think about it.
What is the reason for the collapse of the exchange rate?
To understand the root cause of the yen's collapse, we must begin by understanding the monetary policies of the United States and Japan.
To put it simply, the policy paths of the United States and Japan in tackling inflation are completely opposite. Since the 2008 financial crisis, the Bank of Japan has insisted on maintaining the benchmark interest rate at an ultra-low level of 0-0.1% in the hope of stimulating the economy; The Federal Reserve has recently taken aggressive measures to raise interest rates and tighten to curb soaring inflation.
These two very different approaches will inevitably lead to sharp fluctuations in the exchange rate between the US dollar and the yen. The Fed's interest rate hike will attract more foreign funds to flow into the U.S. financial market, pushing up the U.S. dollar exchange rate. Japan's loose monetary policy has led to a depreciation of the yen and capital outflows.
Therefore, the continued widening of the interest rate differential between the United States and Japan naturally triggered a continuous decline in the exchange rate of the yen against the dollar. From this point of view, a sharp collapse in the yen exchange rate is inevitable, and the Bank of Japan's "lying flat" approach is also reasonable.
After all, excessive artificial intervention in the foreign exchange market may not only backfire and cause greater turmoil, but also be vulnerable to accusations and sanctions by the United States. As an export-dependent economy, Japan is even more reluctant to provoke the United States, its largest trading partner.
The depreciation of the yen is not without benefits for Japanese exporters. The competitive advantage of Japanese manufacturing has always been based on the high quality and reliability of products, not the price. A moderate depreciation of the yen will help boost the price competitiveness of Japanese products in overseas markets.
In the face of exchange rate fluctuations, Japan should deliberately choose to "lie flat" this time to watch the future situation, and it is not completely out of options. In general, the divergence between the monetary policies of the United States and Japan is the root cause of the collapse of the yen. The Bank of Japan maintains a "wait-and-see" attitude, which also has some reasonable considerations.
What is the impact of the crash?
However, the unilateral collapse of the yen will certainly provide some respite for Japan's export industry. However, if the depreciation is too large and out of control, it will also be a heavy blow to Japan.
The continued depreciation of the yen will have a direct impact on the living standards and wealth of the Japanese people. Since Japan is highly dependent on imported energy and commodities, the depreciation of the yen will inevitably push up domestic prices of these commodities and seriously erode the real purchasing power of its citizens.
The sharp fluctuation of the yen exchange rate will bring heavy operating pressure and financial risks to Japanese companies. Many Japanese companies calculate their hedging costs based on the assumption that the exchange rate fluctuates within a normal range, and once the exchange rate fluctuates sharply, it will inevitably disrupt the company's cost accounting.
In the context of economic globalization, the depreciation of the yen may also trigger counter-alliances from other countries and set off a currency war. Eventually, every country will suffer.
In view of this, it will be difficult for Japan to remain blind to the exchange rate issue over time. In the not-too-distant future, the Bank of Japan is likely to be forced to introduce countermeasures to guard against high inflation risks and financial turmoil.
For example, selling U.S. bonds and buying yen; or selective intervention in the foreign exchange market; Or just follow the Fed's lead and start a rate hike cycle...... All these measures could be a magic weapon for Japan.
In an era of unprecedented inflation, how to balance inflation and deflation and maintain the stability of the price and financial system in Japan will be a challenging problem. But in any case, the current "lying flat" can only be an expedient measure, and it is by no means a long-term solution.
Avoid confrontation and maintain a win-win situation
Judging from the current situation, the sharp depreciation of the yen should still be within a manageable range. Japan, perhaps after a careful trade-off, has decided to adopt a "wait-and-see" attitude based on its judgment of the dollar's status and the economic strength of the United States, and will not deliberately change the situation for the time being. Because blind human intervention may exacerbate contradictions and be counterproductive.
This is just Japan's current response, and it is not the ultimate option. If the situation deteriorates further, sooner or later Japan will have to come up with substantive countermeasures to stop the situation from spiraling out of control. At that time, whether it is selling US bonds or choosing to raise interest rates and tighten, it may trigger a new round of contradictions and confrontation between the United States and Japan.
At present, the United States and Japan maintain close cooperation and ties at both the economic and diplomatic levels. It is very important for both sides to avoid new contradictions and confrontations and maintain a win-win situation for both sides.
Rather than competing competitors, the two sides should focus on working together to address growing global challenges. After all, in an era of economic globalization, the unilateral behavior of either side may trigger an uncontrollable chain reaction, and the final lose-lose outcome will be embarrassing.
As for the contradictions that the war diverts, it can only be said that it is the obscenity of the Japanese people. Today's Japan does not have the strength, let alone the courage. If it really happened, in all probability, he would cease to exist.