Currency wars starting? The exchange rate has plummeted, and GDP is lower than in 1995, or will it be harvested by the dollar again?
In the current complex international situation, countries have to get involved in seemingly peaceful but fierce currency wars in order to safeguard their own interests. Recently, the Bank of Japan's series of measures have triggered shocks in global financial markets, is this currency war a crisis or an opportunity? Let's find out!
At present, Japan is facing multiple economic challenges such as high inflation and energy shortages, and the economic situation is sluggish. In order to reverse the decline, the Bank of Japan had to sacrifice a "heavy rebound" - large-scale intervention in the foreign exchange market in an attempt to "put out the fire" for the continuous depreciation of the yen. While this is a demonstration of the Japanese government's resolve, it has also come at a heavy cost, and its long-term effects are questionable.
Specifically, the yen has continued to decline against the US dollar recently, hitting a 24-year low. In order to stabilize the yen exchange rate, the Bank of Japan has repeatedly sold dollars to buy yen through foreign reverse repurchase agreement instruments. According to the data, nearly 2 trillion yen (about 14.8 billion U.S. dollars) were spent on a massive intervention in the foreign exchange market. As Japan's largest single-month foreign exchange intervention in history, this is undoubtedly eye-catching.
The Bank of Japan's action can be described as putting the cart before the horse and helpless. At its root, the continued depreciation of the yen is mainly due to the serious divergence between the monetary policies of Japan and the United States. The Fed is sticking to its rate hike path to curb inflation, while the Bank of Japan is obsessed with maintaining an accommodative policy. Against the backdrop of widening interest rate differentials, it is strange that the yen has risen instead of falling. Therefore, the central bank concocted a large amount of yen to flow into the market, which is tantamount to using a paper shell to extinguish the fire.
On the other hand, the cost of the Bank of Japan's huge intervention in the foreign exchange market is also heavy. This would not only increase its fiscal burden, but also undermine its balance sheet and trigger a series of knock-on effects such as rising inflation expectations. As a matter of fact, this move of the Japanese government has been questioned by many experts and scholars, who believe that it is only an expedient measure, and it is difficult to fundamentally reverse the depreciation of the yen.
It is not difficult to foresee that if the Bank of Japan insists on intervening in the foreign exchange market alone to save the yen, the cost will become higher and higher, and it will eventually become unsustainable. Therefore, the Japanese government must strike a balance between maintaining economic growth and controlling inflation in order to narrow the interest rate differential gap with the United States. This will require not only tightening policy to control inflation expectations, but also structural reforms to boost economic dynamism. Only by solving the problem at its root can we truly reverse the decline of the yen.
This action of the Bank of Japan undoubtedly launched a decisive shock in the currency war, which brought a certain shock to the dollar. With a massive sell-off of US Treasuries, Japan seems to want to deliver a punch to the United States. However, is this the case?
Judging from the current situation, although Japan's move in the currency war caused shocks in the international financial market, it did not deal a decisive blow to the dollar. Because the US dollar is the main international reserve currency, its status has not been shaken. On the contrary, Japan itself may have to bear a greater price.
The massive sell-off of U.S. bonds means that Japan will lose a large amount of its foreign exchange reserves. Foreign exchange reserves are an important pillar of a country's economic security, especially for a country like Japan, which is highly dependent on imported resources. In addition, the injection of large sums of money could also exacerbate Japan's fiscal deficit, which in turn would increase the burden on the economy.
Therefore, although Japan's move reflects the spirit of hard work, the advantages and disadvantages of its gains and losses are worth pondering. In order to truly improve the economic situation, it is far from enough to rely on currency warfare alone, and the Japanese government needs to fundamentally adopt more comprehensive reform measures to promote economic restructuring and enhance its own strength.
In today's world, the tide of economic globalization is rolling forward, and the economic destiny of all countries has long been closely linked. In recent years, however, there have been some worrying changes in the world economic situation. In order to defend their own interests, some countries have adopted unilateral and protectionist measures, which have led to continuous trade disputes and severe shocks to the global economy. In the face of this grim situation, all countries should put aside their prejudices and work together to safeguard the healthy development of the global economy through dialogue and consultation.
We need to understand that the interests of any one country cannot be above the whole world. We live in the same global village, and we are all members of a common destiny. A currency war or trade war will not solve the problem fundamentally, but will lead to greater losses for the global economy, and ultimately both will lose.
For example, in order to protect its steel industry, the United States has imposed high tariffs on imported steel products. Although this practice may protect the interests of some enterprises in the short term, in the long run, it will exacerbate the contradictions between the United States and other countries, hit the development of related industries in the United States, and affect the overall economic strength of the United States.
Second, although the interests of various countries differ, they can always find common ground through dialogue and consultation. We need to abandon narrow unilateralism, listen to the demands of others with an open and inclusive attitude, and seek the greatest common divisor of interests on the basis of mutual understanding.
For example, China and ASEAN countries have differences over the South China Sea, but both sides want to maintain peace and stability in the region. Therefore, China proposed to properly manage differences through dialogue and consultation, and at the same time actively explore new ways of common development, and finally reached a relevant code of conduct, laying the foundation for future cooperation.
Third, in the era of globalization, the economic development of various countries has already formed a pattern of "you have me" and "I have you". We should grasp the intersection of each other's interests, expand the convergence of interests, and achieve win-win cooperation.