The yen exchange rate has always been a major concern in the international financial market. As the world's third-largest economy, Japan's monetary policy has a direct impact on the direction of the global economy. As the saying goes, "a leaf knows autumn", and from the fluctuations of the yen's exchange rate, it is not difficult for us to get a glimpse of the current situation and prospects of the Japanese economy.
Recently, the exchange rate of the yen against the US dollar has seen earth-shattering fluctuations, once falling below the 160 yen to 1 dollar mark, setting a new low in 33 years. This was followed by a surge of nearly 500 points, an increase of more than 2%. What is going on? Is it the result of the intervention of the Bank of Japan, or is it the spontaneous violent fluctuations caused by market behavior? Let's take a look at what's going on, and let me tell you one by one.
Seeing that the yen fell sharply against the dollar, it finally broke through the 160 line on the morning of April 29, hitting a new low since April 1990. This has completely blinded the international financial market, and everyone is talking about it.
The main reason for this is Japan's long-term ultra-loose monetary policy. In order to stimulate the economy, the Bank of Japan has kept interest rates extremely low or even negative. In order to curb inflation, the United States has raised interest rates several times in a row, making the interest rate of the dollar much higher than that of the yen. This provides an opportunity for investors to borrow the yen with low interest rates and reinvest in high-yielding dollar assets to earn interest rate differentials.
Not only international speculative money did this, but even ordinary people in Japan joined in the sell-off of the yen. Due to Japan's tax-free policy for small investments, many Japanese people put their savings into the U.S. stock market to earn tax-free income. According to the data, in the first two months of this year, the net purchase of foreign securities by Japanese individual investors has reached half of that of last year. It can be seen that the appeal of the yen in Japan has also been greatly reduced.
In the face of the collapse of the yen, the Bank of Japan was not in a hurry. Because it is widely expected that the Fed is likely to enter a cycle of interest rate cuts this year, when the yen can stop falling and recover. Unexpectedly, the U.S. economic data in the first quarter unexpectedly strengthened, inflation is also rising, and the Federal Reserve may continue to raise interest rates, so the yen accelerated its decline.
While the depreciation of the yen is good for boosting Japan's export competitiveness, it has also exacerbated inflationary pressures in Japan. Japan's per capita real wage income has fallen for 23 consecutive months, and the country's economic woes have not changed. This shows that a weaker yen is not a good way to save the Japanese economy.
On April 29, the yen rose nearly 500 points after breaking through the 160 mark, which is widely believed to be the result of the intervention of the Bank of Japan. However, Japan's vice minister of finance slyly declined to comment. Some analysts have pointed out that if Japan really intervenes in the foreign exchange market on a large scale, it may cost a huge amount of money of trillions to 10 trillion yen.
The most fundamental way to completely reverse the decline in the depreciation of the yen is to raise interest rates. But for Japan, this is a dilemma. If interest rates are not raised, the cost of imported goods will continue to soar, which will put a lot of pressure on the Kishida cabinet; However, if the interest rate is raised, it will further hit Japan's already weak economy.
Overall, the depreciation of the yen has become a major problem in Japan's economic development. Although exports can be boosted in the short term, in the long run, the fundamental way out of Japan's predicament is to boost domestic demand and enhance economic vitality through deep-seated reforms.
The reason why the depreciation of the yen continues to ferment is largely due to Japan's long-term passive following the US policy. Japan is obedient to the United States in many fields such as politics, economy, and security, and it is inevitable that it will also be constrained by others in its monetary policy. To reverse the passive situation, Japan must have the courage to make its own choices, dare to impose reforms at home and abroad, and rebuild the country's economic strength.
Of course, Japan's predicament also gives us some inspiration. A country's economic development should not only look at short-term interests, but also focus on the long-term; You can't passively follow the trend, but you must have an independent consciousness; We must not rest on our laurels, but must have the courage to reform and innovate. Only in this way can lasting prosperity be truly achieved. Let's wait and see how Japan will save itself!