Solution | How long will the yen continue to fall after hitting a 34-year low – Xinhuanet Client

This is the Bank of Japan headquarters taken in Tokyo, Japan on March 19.Photo by Xinhua News Agency reporter Zhang Xiaoyu

Xinhua News Agency, Tokyo, April 23 (Xinhua) The trading price of the Japanese yen against the U.S. dollar fell to 154.85 yen per U.S. dollar on the 22nd, setting a new record in 34 years and continuing to approach the “dangerous” threshold of 155 in the eyes of industry insiders. Japanese Finance Minister Shunichi Suzuki said on the 23rd that “no options will be ruled out” in response. Japanese media interpreted him as implying that the government would not hesitate to intervene in the currency market to prevent further depreciation of the yen.

Why has the Japanese yen, a safe-haven currency, depreciated sharply recently? What will be the impact of a sharp depreciation? How long will the yen continue to fall? Xinhua News Agency reporters will help you solve the situation——

Highly related to the Fed’s aggressive interest rate hike

Since the beginning of this year, the currencies of many G20 countries have continued to fall across the board against the US dollar. Among them, the Japanese yen has fallen by about 9%, a decline almost equal to that of the Turkish lira. As one of the international safe-haven currencies, the decline of the Japanese yen has attracted attention.

This round of yen depreciation actually started in early 2022. The Federal Reserve, which carried out unprecedented monetary “spillouts” during the COVID-19 epidemic, made a “sudden turn” in 2022 and began to aggressively raise interest rates in response to rising inflation, causing serious negative spillover effects to the world economy, and a variety of non-U.S. currencies depreciated sharply. , many central banks have been forced to carry out “concomitant” interest rate increases, but the Bank of Japan, which has always followed the United States, has been subject to domestic deflation and insisted on a negative interest rate policy.

As the interest rate difference between the Japanese yen and the US dollar expanded rapidly, the Japanese yen exchange rate plummeted: 1 US dollar was worth about 115 yen in early 2022, and fell to nearly 152 by October of the same year, a drop of more than 30% during the period. The Japanese government was forced to intervene three times to increase the yen exchange rate by selling dollars and buying yen.

On September 26, 2023, pedestrians walked past the real-time exchange rate display board on the streets of Tokyo, Japan.Photo by Xinhua News Agency reporter Zhang Xiaoyu

Last year, the Bank of Japan changed its leadership at the end of its term, which was seen by the outside world as a signal that Japan was about to tighten monetary policy. In March this year, the Bank of Japan announced the end of its eight-year negative interest rate policy, but only raised the policy interest rate from minus 0.1% to a range of 0 to 0.1%, while promising to continue to maintain a loose monetary environment. As the degree of tightening was less than market expectations, it intensified the depreciation of the yen.

The U.S. Department of Labor released March consumer price index (CPI) data on the 10th, showing that U.S. inflation has not cooled down. Market expectations for a U.S. interest rate cut within the year have once again been significantly reduced. Affected by this, the exchange rate of the Japanese yen against the US dollar in the foreign exchange market weakened sharply, setting a new record for many consecutive days since 1990.

Depreciation shrinks people’s wallets

In pursuit of higher returns, personal funds in Japan are flowing overseas. Overseas institutional investors engaged in arbitrage transactions, borrowing large amounts of Japanese yen and converting them into foreign currencies for investment, which also exacerbated the depreciation of the Japanese yen. Makoto Kanda, the financial officer of the Japanese Ministry of Finance, has made verbal interventions many times in recent days, saying that “speculation is obviously present in the current market and cannot be tolerated.”

Regarding the depreciation of the yen against the US dollar, Japanese Finance Minister Shunichi Suzuki said on the 23rd that “we will not rule out any options and make appropriate responses to excessive fluctuations.” Japan’s Kyodo News Agency interpreted that Suzuki Shunichi hinted that he would not hesitate to intervene in the currency market to prevent further depreciation of the yen.

In addition, the Japanese stock market has been booming this year, and many people think that the Japanese economy is going to take off. In fact, most of the people buying Japanese stocks are foreign institutional investors, and the Japanese people have not become looser. Keio University professor Shirai Hayuri said in an earlier interview with the media that excessive depreciation of the yen has reduced consumer purchasing power, and corporate investment and production have also slowed down.

This is a clothing store photographed in Ueno Ichi Commercial Street, Tokyo, Japan on August 15, 2023.Photo by Xinhua News Agency reporter Zhang Xiaoyu

As of March this year, Japan’s core consumer price index (CPI) has increased year-on-year for 31 consecutive months, but this round of inflation has not been accompanied by rising domestic demand. In fact, wage increases in Japan have not kept pace with price increases, and real wage income has declined year-on-year for 23 consecutive months. In the words of UNIQLO President Yanai Masaru, under such circumstances, it is normal for ordinary people to be unwilling to buy things. Data from the Japanese Cabinet Office show that as of the fourth quarter of last year, personal consumption, which accounts for more than half of the Japanese economy, has experienced negative growth for three consecutive quarters.

As real incomes shrink, consumers tend to choose cheaper products: in supermarkets, beef sales have plummeted, and chicken has become more popular; domestic shipments of Japanese ultra-thin TVs have declined for three consecutive years. Recently, affected by the tense situation in the Middle East, international crude oil prices have risen again. Nomura Research Institute economist Nobuhiro Kiuchi believes that as energy prices rise and the yen depreciates, the Japanese economy will encounter stronger headwinds. Rising prices may further suppress personal consumption, thereby exacerbating Japan’s stagflation situation.

How long will the yen continue to fall?

This round of depreciation of the yen was not entirely caused by the aggressive interest rate hikes in the United States. Some long-standing structural problems in the Japanese economy have also become factors driving the depreciation of the yen.

First of all, Japan relies heavily on imports of important resources such as energy, food, and raw materials, and its demand for U.S. dollars continues to increase. After the Fukushima nuclear power plant accident in 2011, nuclear power plants in Japan were shut down one after another. Nuclear power originally accounted for about a quarter of Japan’s annual power generation, but it fell to zero in 2014. Restarting nuclear power has made slow progress, and the demand for energy imports has further increased.

On March 19, a pedestrian walked past the Bank of Japan headquarters in Tokyo, Japan.Photo by Xinhua News Agency reporter Zhang Xiaoyu

Second, Japan’s trade in goods and services trade continues to be in deficit. The latest data shows that Japan’s trade in goods has experienced a trade deficit for three consecutive fiscal years from 2021 to 2023; although the situation in 2023 has eased significantly compared with the previous year, the total deficit in goods and services is still 9.8 trillion yen.

Many experts pointed out that although inbound tourism is in good shape against the backdrop of the depreciation of the yen, with the in-depth development of AI technology, the service fees paid by Japan to overseas will increase significantly, and the service trade deficit problem will become more obvious.

Third, although the income from overseas investment is huge, the amount of funds returning home tends to decrease. There is a saying in Japan that “there is another Japan overseas.” However, due to sluggish domestic demand and manpower shortages in Japan, Japanese companies continue to expand the scale of overseas investment. After bringing in huge profits, they lack the motivation to return to the country for investment and choose to store their profits overseas.

Talking about the future trend of the Japanese yen exchange rate, experts analyzed that although the Japanese yen is currently in an extremely weak state, the trend that the Federal Reserve and other major central banks will cut interest rates in the future and the Bank of Japan will slowly raise interest rates will not change. “One drop and one rise” will be conducive to The yen appreciates. Ding Ke, chief researcher at the Japan External Trade Organization’s Asian Economic Research Institute, believes that future appreciation of the yen is inevitable, but the Tokyo stock market may face resistance if it continues to rise. Although Japan’s position in certain links in the supply chain is still irreplaceable, as the declining birthrate and aging population are difficult to reverse, the general trend of Japan’s economic contraction will be difficult to change in the long term. (Reporter: Liu Chunyan; Editors: Shen Min, Lu Yu, Wang Fengfeng)