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Japan Central Row 陷入窮, 日元汇率暴跌致国债浮亏严重
As the world's third-largest economy, Japan's proud economic power is facing unprecedented challenges. The Bank of Japan has recently been caught in a dilemma: Should it maintain monetary easing to stimulate inflation, or should it tighten monetary policy to curb the depreciation of the yen? This monetary policy contest has already plunged the Bank of Japan into a quagmire of floating losses in government bonds.
As everyone knows, Japan has been a "deflationary country" for a long time, and deflation has become a stubborn disease in the Japanese economy. In response to this dilemma, the Bank of Japan has been pursuing massive monetary easing since 2013, with the aim of spurring inflation by printing large amounts of money and buying bonds.
But just recently, this policy has caused new problems for the Bank of Japan. As the Federal Reserve continues to raise interest rates, the U.S. dollar continues to rise against the yen, causing the yen to continue to depreciate against other major currencies as well. In 2022 alone, the yen depreciated by almost 20% against the dollar. On the one hand, the depreciation of the yen will push up the price of Japan's imports and fuel inflation. But on the other hand, the depreciation of the yen also means that the value of foreign currency assets held by the Bank of Japan has increased, which has created a huge "floating loss" for the central bank.
It is estimated that the value of foreign currency assets held by the Bank of Japan was about $3 trillion at the end of March 2022. The book value of these assets was about 340 trillion yen at the current exchange rate. However, due to the depreciation of the yen, the market value of these foreign exchange assets had risen to around 420 trillion yen by the end of November, leaving the Bank of Japan with a floating loss of 80 trillion yen. This is only a temporary floating loss at market value, and if the yen continues to depreciate in the future, the central bank's losses will widen further.
In the face of such huge floating loss pressure, the Bank of Japan began to waver. Although the head of the central bank, Haruhiko Kuroda, had previously stated that he would not intervene too much in the exchange rate, the central bank then had to intervene in a large-scale yen buying operation. Since the beginning of this year, the Bank of Japan has intervened in about $60 billion in yen buying in an attempt to reverse the depreciation of the yen, but the effect has not been satisfactory.
This battle of monetary policy is full of difficult choices. If the Bank of Japan sticks to easing, the depreciation of the yen will lead to greater losses; However, if monetary policy is tightened to curb the depreciation of the yen, it will be difficult to achieve the inflation target. For the Bank of Japan, this is simply a dilemma.
In the face of the current predicament, the Bank of Japan is indeed in a very passive position. However, we should also be soberly aware that this passivity is largely due to Japan's long-term monetary easing. In order to achieve its price growth target, the Bank of Japan (BOJ) has had to continue to buy large amounts of bonds, resulting in a significant inflation of the central bank's balance sheet. Once the exchange rate fluctuates violently, it will bring huge floating pressure to the central bank.
This reaffirms the fact that central banks will not be easy to achieve their inflation targets, and that overly loose policy can have serious negative consequences. For the Bank of Japan, it will be necessary to weigh the pros and cons in the future and carefully consider when and how to exit easing. Otherwise, whether it is long-term deflation or the floating losses caused by the collapse of the exchange rate, it will become a stumbling block to the Japanese economy, and may even trigger a financial crisis.
China has once again demonstrated its responsibility as a major country and has helped Japan's economy in the face of hardship
In the current turbulent international situation, China, as a responsible major country, has once again demonstrated its unique strategic vision and humanitarian concern. Recently, the People's Bank of China announced a net purchase of US dollars, a move widely seen as potentially easing the Japanese economy's woes. This not only demonstrates the importance that China attaches to maintaining global economic stability, but also demonstrates the friendship of the Chinese nation that is willing to lend a helping hand to its neighbors in times of trouble.
As we all know, Japan has long been an important neighbor and trading partner of China in the Asian region. Although the two countries have differences in some areas, it is in the fundamental interests of the two countries to maintain benign and mutually beneficial cooperative relations. In recent years, the Japanese economy has been in trouble due to the double blow of the pandemic and the continuous depreciation of the yen. In particular, the Bank of Japan holds a large number of US dollar assets and faces a serious risk of floating losses.
At this critical juncture, China acted decisively, and the People's Bank of China announced a net purchase of US dollars. This will undoubtedly boost the US dollar exchange rate, thereby reducing the pressure on the Bank of Japan's US dollar asset float and loss, and have a positive impact on stabilizing the Japanese economy. China's move is tantamount to sending charcoal in the snow, demonstrating the responsibility and responsibility of a major country.
As the two largest economies in Asia, China and Japan maintain good cooperative relations, which is not only conducive to the development of both sides, but also conducive to maintaining economic stability in Asia and even the world. We hope that this act of goodwill will will promote the further improvement of China-Japan relations, work for the well-being of the two peoples, and contribute to peace and development in Asia and the world.
China's assistance to Japan this time reflects China's foresight as a responsible major country. In a turbulent world, China has always been a staunch force for maintaining regional peace and promoting common development. We have reason to believe that under China's leadership, the Asian and global economies will surely regain the momentum of recovery and write a more brilliant new chapter.
The international community will work together to address economic challenges and maintain global prosperity and stability
In this time of unprecedented challenges, globalization has brought profound influence and connections to countries around the world. Whether developed or developing, our destinies have long been closely linked. In the face of a severe economic situation, no country can survive the difficulties alone. Only through solidarity and cooperation can we harness the storm and lead the world economy to regain its strength.
At present, the global economy is facing increasing risks and uncertainties. Inflation remains high, energy supplies are blocked, geopolitical conflicts are on the rise, and the pandemic is still in the picture. The combination of various negative factors has plunged the world economy into a period of turmoil. In these extraordinary times, the actions of the two largest economies, China and Japan, send an important signal of international cooperation.
The People's Bank of China firmly implements a prudent monetary policy and maintains reasonable and abundant liquidity. At the same time, the Bank of Japan maintained an accommodative monetary policy stance to protect the operation of the economy. The efforts of the two economies have not only built a solid dam for their own economic development, but also contributed to the stability of the global economy.
China and Japan have a long history of cooperation in the economic field. As an important pillar of the Asian and world economies, China and Japan have strong economic strength and great potential for cooperation. For a long time, the two sides have maintained good interaction in many fields such as trade and investment, industrial complementarity, etc., which has injected sustained impetus into the economic development of the two countries and even the world.
The intensification of the current geopolitical game has brought some resistance to the economic cooperation between China and Japan. However, we have reason to believe that after several generations of hard work, the economic ties between China and Japan have long been deep-rooted, and any short-term turmoil cannot change the general trend of the two countries working together.
In this era of profound changes unseen in a century, international cooperation and coordination are essential to maintaining global economic stability. We should cherish the contributions made by China, Japan and other countries to safeguarding the operation of the world economy, and call on more countries to join the tide of international cooperation.
Human society will eventually enter the spring of prosperity and development, but the road ahead is still full of thorns. In the face of many challenges, we need the spirit of international cooperation of mutual assistance and solidarity. Let us join hands to jointly safeguard world peace and promote the steady and long-term development of the global economy! I believe that as long as we work with one heart and one mind to tide over difficulties, human society will certainly be able to regain its vitality.
Author's statement: Some of the pictures in this article are taken from the Internet and are invaded and deleted. The content is for entertainment only, no bad guidance, please establish the right values!