The Japanese stock market and foreign exchange market have suffered a "double kill".
On November 14th, the Japanese yen continued to decline against the US dollar, falling below the 156 mark at one point, the lowest point since July this year. Analysts believe that the continuous drop of the Japanese yen below the two key psychological thresholds of 155 and 156 has increased the risk of Japanese authorities intervening in the foreign exchange market.
At the same time, the Japanese stock market continued to decline. As of the close, the Nikkei 225 index fell 0.48% to 38535.7 points, recording three consecutive declines. The cumulative decline this week has expanded to 2.4%, with Tokyo Electronics and SoftBank Group falling more than 3%.
It is not difficult to find that the main reason for the depreciation of the Japanese yen in this round is external factors. After Trump won the US election, the yield of US treasury bond bonds continued to soar, putting pressure on the yen. Analysis suggests that due to the steepening of the yield curve, yen arbitrage trading may have resumed.
At present, foreign exchange traders are closely monitoring the possible intervention measures taken by the Japanese authorities. The continued depreciation of the yen may prompt the Bank of Japan to consider raising interest rates early. According to overnight index swaps, the likelihood of the Bank of Japan raising interest rates at its December policy meeting is close to 50%.
It is worth mentioning that there have also been adjustments in the A-share and Hong Kong stock markets today. As of the closing of the A-share market, the ChiNext Index fell 3.4%, the Shanghai Composite Index fell 1.73%, the Shenzhen Component Index fell 2.83%, and the number of stocks falling in the Shanghai, Shenzhen, and North stock markets exceeded 4800; The Hang Seng Technology Index fell 3.1%, while the Hang Seng Index fell 1.93%.
Trump's Impact
On November 14th, the Japanese yen continued to decline against the US dollar, falling below 156 for the first time since July this year, and now trading at 155.97. At the same time, the US dollar index continued to rise, reaching a one-year high and hitting a intraday high of 106.7798.
It is easy to find that the main reason for this round of depreciation of the yen is from the outside. After Trump won the US election, the yield of US treasury bond bonds continued to soar, putting pressure on the yen. As of press release, the US two-year treasury bond bond yield has reached the highest level since July.
Analysts believe that due to the steepening of the yield curve, yen arbitrage trading (selling low yield yen and buying high-yield US dollar assets) may have resumed.
This wave of selling has caused the yen to fall to its lowest level since July this year, greatly increasing the risk of Japanese foreign exchange officials intervening again to boost the yen.
According to a survey conducted by Bloomberg last month on 53 economists, the lowest forecast for the Japanese yen to trigger government intervention is 150, with a median of 160.
Shoki Omori, Chief Japan Strategist at Mizuho Securities in Tokyo, said, "Based on our conclusions from US CPI, PPI, and retail sales data, if the Japanese Ministry of Finance does not intervene verbally, we may see a rapid appreciation of the US dollar against the Japanese yen
After Trump won the election, it is widely predicted that his economic policies may slow down or instead heat up the cooling rate of inflation in the United States, and this background may cause the Federal Reserve to slow down its original pace of interest rate cuts or reduce the magnitude of interest rate cuts. This may slow down the pace of narrowing the US Japan interest rate differential, further weakening the yen.
Marc Chandler from Bannockburn Global Forex, a US financial trading company, analyzed that the current yen sell-off may be led by speculators. Customers mainly from manufacturing and other actual demand enterprises are cautious about selling Japanese yen, but during New York trading hours, selling Japanese yen has become unusually active.
The candidate for the next Treasury Secretary in the Trump administration is also a focus of market attention, and it is expected that Trump will narrow down the range of candidates for the next Treasury Secretary as early as this week. During this period, it is difficult to take actions that may be hostile to the United States and hold a negative attitude towards Japan's foreign exchange intervention, "said a US foreign exchange trader
Scott Bessent, who is considered a candidate for the next US Treasury Secretary, said in an interview, "I believe that if good economic policies are adopted, the US dollar will naturally appreciate.
The Key Decision of the Bank of Japan
Trump's expansionary and inflationary economic policies may make the Federal Reserve less willing to cut interest rates. This may further weaken the yen as the market questions the speed at which the US Japan interest rate differential is further narrowing.
At present, foreign exchange traders are closely monitoring the possible intervention measures taken by the Japanese authorities.
This year, Japan spent a record 9.8 trillion yen (approximately 63 billion US dollars) on intervention in late April and early May, and after the yen fell to its lowest point since 1986 in early July, it spent an additional 5.5 trillion yen (approximately 35.4 billion US dollars) to support the yen.
The continued depreciation of the yen may prompt the Bank of Japan to consider raising interest rates early. In October this year, Bank of Japan Governor Kazuo Ueda admitted at a press conference that the exchange rate has been affecting Japan's price trend.
Nanwu Zhi, Chief Economist of the Agricultural and Forestry Central Treasury Research Institute, pointed out that the inflationary pressure on wholesale commodity prices remains severe. Despite the lack of consumer motivation, wage increases continue, so the possibility of a rate hike in December is increasing.
If the Bank of Japan does not raise interest rates and the Federal Reserve's attitude is not so dovish, the yen may touch 158 yen by the end of the year, "said Omori from Mizuho Securities.
According to former Bank of Japan official Kazuo Momoma, 80% to 90% of the reason why the Bank of Japan chose to raise interest rates in July this year was driven by the significant depreciation of the yen.
In addition, the unexpected increase in inflation data in Japan also increases the possibility of the Bank of Japan raising interest rates in December. Data released on November 13th showed that wholesale inflation accelerated in Japan in October, with the Japanese Corporate Commodity Price Index (CGPI) rising 3.4% year-on-year, higher than market expectations of 3.0%.
Ueda Kazuo previously emphasized that if inflation is driven more by strong domestic demand and rising wages rather than rising raw material costs, the bank is prepared to raise interest rates again.
According to overnight index swaps, traders currently believe that the likelihood of the Bank of Japan raising interest rates at its December policy meeting is close to 50%.
A research report from JPMorgan's Department of Economic and Policy Research suggests that the Bank of Japan may raise interest rates earlier than expected in 2025. The potential new trend of weak yen may further increase the inflation trajectory of the US and Japanese central banks.
JPMorgan expects the Bank of Japan to raise interest rates by 25 basis points in December of this year, followed by another rate hike in April and October 2025. Previously, they had expected to raise interest rates in June and December.
Analysts warn that further interest rate hikes by the Bank of Japan could trigger market turbulence and disrupt the long-term path of the bank's monetary policy normalization. Some economists say that the Bank of Japan's July rate hike was one of the factors that triggered the global market crash in early August.