The Japanese yen has been hit again by fierce air strikes.
On July 2nd, the Japanese yen exchange rate plummeted, hitting a 38 year low against the US dollar, dropping to 161.75 at one point. The cumulative decline of the Japanese yen against the US dollar for the year expanded to 14.8%. This means that in the past few months, the efforts of the Japanese authorities to "rescue the market on a large scale" have come to nothing.
The continued sharp decline in the Japanese yen exchange rate has intensified market concerns about the possibility of the Japanese government taking action to "rescue the market.". Bank of America Securities and Citigroup predict that the next round of intervention by the Japanese government may only be implemented when the yen falls to 165 yen against the US dollar. According to Citigroup estimates, Japan has approximately $200-300 billion in funds available to fund further monetary intervention actions.
Currently, the negative impact of the continued sharp decline in the Japanese yen exchange rate has begun to emerge. Due to Japan's heavy reliance on imports for energy and food, the continuous depreciation of the yen is significantly pushing up domestic prices in Japan. The continuous decline of the Japanese yen has even become a risk point for the Japanese stock market, and Schroder Investment Company has recently downgraded its rating for the Japanese stock market.
A new low in 38 years
On July 2nd, the Japanese yen exchange rate plummeted, hitting a 38 year low against the US dollar, dropping to 161.75 at one point. The cumulative decline of the Japanese yen against the US dollar for the year expanded to 14.8%.
The continued sharp decline in the Japanese yen exchange rate has intensified market concerns about the possibility of the Japanese government taking action to "rescue the market.".
Masafumi Yamamoto, Chief Foreign Exchange Strategist at Mizuho Securities, said that the Japanese authorities may be starting to worry not only about speed, but also about level. Unless they intervene, there is a risk of the yen/dollar exchange rate falling towards 162.
So far, there have been no signs of Japanese government intervention in the foreign exchange market.
Bank of America Securities and Citigroup believe that the recent statements made by the Japanese government may only be "talking nonsense" and will not truly be put into practice. They expect that the next round of intervention measures by the Japanese government may not be implemented until the yen/dollar exchange rate drops to 165.
According to Citigroup's estimate, Japan has approximately $200-300 billion in funds available to fund further monetary intervention actions.
Senior foreign exchange strategy analyst Vassilis Karamanis said that if the yen falls below the key psychological threshold of 163, it may prompt the Japanese Ministry of Finance to intervene in the market to stabilize the exchange rate and reduce market instability.
But the market suspects that any further intervention by the Japanese government in the future may also be difficult to change the current weak situation of the yen. According to the latest data released by the Commodity Futures Trading Commission, asset managers have reached the highest level of bearish bets on the Japanese yen since 2006.
Another reason why the Japanese authorities have been slow to take action is due to significant personnel changes.
The Japanese Ministry of Finance announced the appointment of Atsushi Mimura, the current Director of the International Bureau of the Ministry of Finance, as the Deputy Minister of Finance, replacing Shinzo Kanda in charge of the Ministry's international affairs. This position will be responsible for overseeing Japan's foreign exchange policy and coordinating economic policies with other countries.
This appointment will officially take effect on July 31st. This means that we are currently at the stage of personnel handover, and the release of relevant policies is also relatively cautious.
The market speculates that there may be new policy considerations for replacing the top currency official in the emergency situation of the sharp decline of the yen.
The impact of the sharp drop in the Japanese yen
Currently, the negative impact of the continued sharp decline in the Japanese yen exchange rate has begun to emerge.
Due to Japan's heavy reliance on imports for energy and food, the continuous depreciation of the yen is significantly pushing up domestic prices in Japan.
The latest data released by the Ministry of General Affairs of Japan shows that in June this year, the consumer price index of residents in Tokyo's urban areas, excluding fresh food, increased by 2.1% year-on-year, which is an expansion from the previous month.
Another statistical data also shows that within this year, Japan has raised or plans to raise prices for over 10000 types of food. Experts predict that if the Japanese yen remains at 160 yen per US dollar, even with subsidy measures, the average expenditure burden per household this year will increase by 90000 yen (approximately 4000 yuan) compared to last year.
Makoto Noji, chief foreign exchange and foreign bond strategist of Sumitomo Mitsui Nikko Securities, believes that the weakness of the yen has become a problem that cannot be ignored. "Given the rising cost of living caused by import inflation, the depreciation of the yen cannot be ignored."
The continuous decline of the Japanese yen has even become a risk point for the Japanese stock market. Schroder Investment Company has recently downgraded its rating on the Japanese stock market and stated in a report that the weak yen is leading to signs of deteriorating confidence among Japanese consumers and small businesses.
The Federal Reserve's "airstrikes"
Analysts believe that the prolonged inaction of the Federal Reserve, which has resulted in a huge interest rate spread between the United States and Japan, is the main reason for the sharp decline in the Japanese yen exchange rate.
On the one hand, even after abandoning negative interest rates in March this year, the Bank of Japan's interest rate has remained hovering between 0 and 0.1%.
On the other hand, the Federal Reserve's federal funds rate target remains at a historical high of 5.25% -5.5%, and the Federal Reserve continues to release signals to delay interest rate cuts, which also continues to put pressure on the yen.
According to the schedule, the next policy meeting of the Bank of Japan will be held from July 30th to 31st. Some analysts believe that simply reducing the size of bond purchases may not prevent the yen from further falling, and the Bank of Japan may announce both a reduction in bond purchases and a rate hike at its July meeting.
On July 1st local time, the latest quarterly short-term survey report released by the Bank of Japan showed that the confidence index of large manufacturing companies in Japan climbed from 11 in the first quarter to 13 in the second quarter. Meanwhile, the confidence index of large non manufacturing enterprises in the second quarter slightly decreased from the highest level of 34 since 1991 to 33.
The Japan Short term Survey is a quarterly survey report conducted by the Bank of Japan on over 10000 Japanese companies. The survey results for the first to fourth quarters are released annually in April, July, October, and December.
This short-term survey report will be an important economic data before the interest rate meeting. At present, the momentum of Japan's manufacturing industry is stable, which may pave the way for the Bank of Japan to raise interest rates in July.
In addition, the continuous rise in Japanese prices has also become a driving force for the Bank of Japan to further raise interest rates.
According to Yuichi Koyu, Chief Economist of Meiji Yasuda Institute, due to rising inflation expectations, it is easy for the Bank of Japan to explain that even if interest rates are raised once or twice, they are still sufficiently loose, which will become a factor driving interest rate hikes. If the yen continues to depreciate, it is highly possible to further raise interest rates while reducing the purchase of treasury bond in July.