Is the Japanese yen falling below 151 against the US dollar a blessing or a curse? | New York foreign exchange market | Yen depreciation | Japanese economy

[The Epoch Times, November 03, 2023](An interview report by a reporter from the Epoch Times Special Topics Department) In the New York foreign exchange market on October 31, because the Bank of Japan did not adjust its monetary policy as much as expected, the market accelerated the selling of the yen and the purchase of Japanese yen. The exchange rate between the US dollar and the Japanese yen once fell to 151.74 yen per US dollar. In addition, experts believe that one of the reasons for the rise of the US dollar is also due to the current world turmoil; and the Japanese yen may continue to depreciate, which will bring the risk of increased import costs and economic decline for Japan. Japanese entrepreneurs have a different view on this and believe that the depreciation of the yen is beneficial to Japan’s economic growth.

On October 31, the Bank of Japan decided to further increase the flexibility of monetary policy, but the New York market generally believes that there will be no major adjustments and that monetary easing policy will continue.

Many investors believe that it will take time for the Bank of Japan to change its negative interest rate policy, and the possibility of market intervention by the Japanese government and the Bank of Japan is also weakening; while the U.S. Federal Reserve (FRB) currently maintains a high-level interest rate policy in order to curb rising prices. Against the background of solid U.S. economic indicators, U.S. long-term interest rates remain high, making it clear that the currency interest rate differential between Japan and the United States is widening. Therefore, investors sold the yen and bought the U.S. dollar, causing the yen to fall below the 151 yen mark for 1 U.S. dollar on October 31. When the foreign exchange market opened this year, the exchange rate was 129 yen per US dollar.

The Federal Reserve issued an announcement on November 1 that it would continue to keep interest rates unchanged, but it also opened the door to raising interest rates in the future to continue to slow inflation. Affected by this, the yen-dollar exchange rate returned to around 1 US dollar = 150 yen. It did not exceed 151.94 yen on October 21 last year and fell to 33 years (1 US dollar = 159 yen in 1990) as people feared. ), the yen is at its lowest level against the dollar since.

Regarding the reasons for the depreciation of the yen, Dr. Xie Tian, ​​a professor at the Aiken School of Business at the University of South Carolina, told The Epoch Times, “I think that in addition to the continued high level of U.S. interest rates, there are also reasons for world unrest and the deterioration of the war situation. . Whenever there is a war in the world or problems with global security, the US dollar rises, gold rises, and the US arms industry prospers. This should be the reason for the appreciation of the US dollar.”

Regarding the future trend of the yen’s depreciation, Xie Tian believes that “in addition to the strengthening of the US dollar, there are also some negative impacts on the Japanese economy, coupled with Russia’s restrictions on Japanese energy, there are too many negative conditions. The depreciation of the yen should continue .” He also said that the impact of the depreciation of the yen on Japan is an increase in import costs and may also lead to an economic downturn.

Mr. LU, a Japanese entrepreneur and Sino-Japanese political and economic commentator, told The Epoch Times, “This trend of depreciation of the yen is something we expected. In order to revitalize the economy, Japan will depreciate the yen for a long period of time. It remains between 130 and 150 yen per US dollar. The Japanese economy cannot bear the appreciation of the yen, and depreciation is the need of the Japanese economy and the choice of the Japanese government.”

He also said, “The depreciation of the yen will bring about a certain amount of inflation in the future. However, Japan is currently experiencing economic recovery and development, which is still beneficial to economic growth, such as exports, etc., and is generally good. A rise in U.S. interest rates will basically It has been completed, so the yen will not fall too much against the dollar. In addition, the purchasing power of the yen is also very strong, so there will not be any big problems.”

The background of the depreciation of the yen and the price comparison of the yen against the US dollar over the past 43 years

The Bank of Japan decided at the monetary policy meeting held on October 31 to modify the upper limit of the long-term and short-term interest rate control targets. The upper limit of the long-term interest rate is 1%, but it is allowed to exceed 1% by a certain margin. This is considered to be a cautious fine-tuning of the central bank’s policy. Central Bank President Kazuo Ueda did not talk about future policy adjustments at the press conference after the meeting.

The Bank of Japan released the “Economic and Price Situation Outlook” (Outlook Report) on the 31st, predicting that the consumer price index will increase by 2.8% annually in 2023 and 2024, and is expected to grow slightly by 1.7% in 25 years. As wages will continue to rise, it is expected that wages and prices will create a virtuous cycle by 2025. This should be one of the reasons why no financial policy adjustments are currently being made.

In order to speed up currency circulation, increase investment, and stimulate economic growth, Japan began to implement a negative interest policy in February 2016. Local banks’ deposits with the central bank exceeding the prescribed amount will be deducted a negative interest rate of 0.1% per year.

Although the Bank of Japan did not announce the lifting of the negative interest rate policy at this meeting, market analysts believe that it can be seen from the Bank of Japan’s latest policy and price outlook report that Japan is not far away from lifting the negative interest rate policy, perhaps as soon as January 2024. A decision will be made. However, due to the many uncertainties at home and abroad, it is generally believed that the Bank of Japan will carefully observe and judge and choose the best time.

Since the disintegration of Japan’s bubble economy, the price of the yen against the U.S. dollar has repeatedly fluctuated violently. In 1980, the ratio of the U.S. dollar to the Japanese yen was 1 U.S. dollar = 226 yen; in 1982, it was as high as 249. The price comparison exceeded 200 yen until 1985 (238). Since 1986, the price of the yen against the US dollar has increased, reaching 1 US dollar = 168 yen, and it has been at the 100-yen level until 2008 (103); in 2009, the yen rose to 1 US dollar = 93 yen, and in 2012 it rose to 100 yen. 1 US dollar = 79 yen; starting in 2014, it depreciated again, returning to the 100 yen level, and basically remained at an average exchange rate of 1 US dollar = 110 yen until 2021 (109); in 2022, it depreciated significantly to 1 US dollar = 131 yen; entering 2023, the yen continues to depreciate, reaching the current level of 1 US dollar = 151 yen.

The impact of the depreciation of the yen on the Japanese economy

The depreciation of the yen is conducive to Japanese exports and is good for Japanese companies that focus on exports. Price competitiveness increases, and products can be sold abroad at low prices, allowing companies to gain greater profits, and will benefit other industries and society as a whole. .

On November 1, Toyota Motor Corporation, which focuses on exports, revised the original setting of 1 US dollar = 125 yen to 1 US dollar = 141 yen, which is expected to increase earnings in the next period (March 2024). 50%, operating income increased by 4.5 trillion yen.

In addition, Honda originally set 1 US dollar = 125 yen, and Nissan originally set 1 US dollar = 132 yen. Compared with the original setting, for every 1 yen depreciated, Toyota’s annual revenue will increase by 50 billion yen, Honda’s 10 billion yen, and Nissan’s 12 billion yen.

Due to the depreciation of the yen, the number of foreign tourists traveling to Japan will increase, which will boost related economic growth. In addition, Japanese companies overseas can exchange the dollars they receive overseas into more yen.

The depreciation of the yen is not conducive to imports. The cost of imported raw materials, etc. will increase accordingly. After Russia invaded Ukraine, the prices of oil, grain, etc. rose and remained high. Under this circumstance, further depreciation of the yen will lead to an increase in import costs, which will have an impact on companies and the lives of Japanese people. Private think tanks estimate that for ordinary households, the depreciation of the yen may result in an average increase of more than 100,000 yen in annual expenses for each household compared with last year.

For Toyota Motor, the depreciation of the yen also has disadvantages. In October last year, Toyota Motor Corporation President Akio Toyoda said at a press conference that compared with 10 years ago, the number of cars exported overseas has decreased by approximately 20%. The reality is that due to the increase in imported materials and parts, as well as rising energy prices and other factors, it can be said that the negative impact of the depreciation of the yen is expanding. Toyota wants a stable yen.

In addition, Masaya Yanai, president of Uniqlo Japan, said that no one in the manufacturing industry can feel the benefits of the depreciation of the yen. For example, no one among small businesses, salarymen, business operators, etc., feels that the depreciation of the yen has brought benefits; on the contrary, the negative impact on the economy is very serious.

(Reporter Zhang Zhongyuan contributed to this article)

Editor in charge: Lian Shuhua#