On August 7, the Nikkei 225 continued to rebound, but by the end of the day it had not recovered from its losses on Black Monday. Meanwhile, the yen continued to fall against the dollar on the 7th, falling as much as 2% . Some analysts believe that the bank of Japan interest rate rise and yen appreciation triggered global foreign exchange market turmoil. In fact, the yen has continued to weaken against the dollar since the start of the year, hitting a 38-year low against the dollar at the end of June, briefly breaking through the 160-to-1 mark, before strengthening, it rose above Y141 to the dollar yesterday before falling again in the past two days, falling above Y146 in July. Some experts told the global times that the recent short-term appreciation of the yen has not changed the overall trend of its sharp depreciation. The devaluation of the yen is not only a response to the Fed’s high interest rate policy, but also a reflection of economic interdependence and policy spillover effects under the changing global monetary policy environment.
“The yen may continue to depreciate in the medium to long term.”
In the first half of this year, in the context of the depreciation of the yen, tourism to Japan is growing. More than 17.77 million foreign tourists visited Japan in the first half of this year, up 65.9 percent from the same period last year and 6.9 percent from the first half of 2019, before the outbreak, according to the Japan government tourism administration. This means that Japan has not only returned tourism to pre-pandemic levels, but also set a further record. A survey last month by the tokyo-based Nippon Foundation Research Institute said foreign visitors to Japan also doubled their spending in the first quarter of this year, reflecting the“Positive energy” of a weaker yen. Tokyo is the“Fourth cheapest country in the world”, according to a global travel ranking published this year by British Post. According to the“Global Times” special correspondent in Japan observed that the devaluation of the yen on Japan to accelerate the promotion of tourism strategy play a very obvious role. Arguably, the depreciation of the yen is becoming one of the new support points for Japan to“Attract flows”.
People walk past an electronic bulletin board showing the value of the dollar against the Yen in Tokyo, Japan, Aug. 7,2010.
Y? Takahashi, a professor of Japanese economics in Kaetsu University, predicted in 2022 that the devaluation of the yen would not only lead to “Subjugation”, but would bring “National benefits”. Japan should not overreact to the depreciation of the yen, but should maintain loose financial policy, wrote Japanese economist Morakami in the Toyo Economy in June, the country can enjoy higher economic growth in the next five years by avoiding the mistakes in judgment during the Heisei era bubble economy and improving the overall external price competitiveness of Japanese enterprises.
On the other hand, there are more and more worries about the depreciation of the yen, and the double-edged sword of devaluation seems to bring more“Disadvantages” than“Benefits”. Last month, the International Monetary Fund published an update to its world economic outlook, cutting its forecast for 2024 Japanese growth by 0.2 percentage points. Shortly thereafter, the Cabinet Office announced a 0.4 per cent cut in its 2024 gross domestic product growth forecast.
In people’s daily life, the negative impact of the devaluation of the yen is becoming more and more significant. Take tourism as an example. Japanese citizens and foreign tourists feel differently about the devaluation of the yen because of their different perspectives. What many foreign tourists see as low-priced goods, for the Japanese, is constantly rising prices. In May, Tateda Kazuo, Boj governor, warned that a weaker yen was becoming more price-sensitive than in the past. Japan’s inflation rate has exceeded 2% for 23 consecutive months, the data show. “Tokyo News” reported that the depreciation of the yen as the background of rising prices, is leading to continuous negative growth in personal consumption. The economic research scholar Xin Jiayi thinks, compared with the income fluctuation, the price rises to the individual consumption downturn influence is the biggest. As one of the important“Carriages” of Japan’s current revitalization, the trend of“Domestic demand force” deserves continuous attention.
As for companies, a survey of 1,046 companies conducted by the Imperial Data Bank of Japan in May this year showed that 63.9 percent of corporate earnings were hit by the depreciation of the yen, and the prices of imported raw materials rose, but it can not simply raise commodity prices to deflect pressure. In April, the former head of Salia, a Japanese restaurant chain, told Japanese Fuji News Network that the impact of the devaluation of the yen had spread to all imported ingredients, the restaurant is“In the worst shape”. Takeshi Kawamura, President of the Yoshino Group, also said the surge in beef prices had had a big impact on the group’s operations.
Dr. Wu Jinduo, an adjunct researcher at Fudan University’s financial research center, told the global times that with the increasing expectations of the Federal Reserve’s interest rate cut and Japan’s announcement of an interest rate rise after the era of negative interest rates, the Yen has risen continuously since July. However, the short-term appreciation did not change the overall trend of sharp depreciation of the yen this year. Without a substantial improvement in the fundamentals of the Japanese economy, the yen may continue to depreciate in the medium to long term.
Xiang haoyu, a research fellow at the China Institute of International Studies’ asia-pacific Research Institute, told reporters that a moderate depreciation of the yen is good for exports and the Japanese government is happy to see its success. But the excessive depreciation of the yen has done more harm than good to Japan’s economy. As a result, the policy orientation of the Japanese government has gradually shifted to curb excessive depreciation of the yen. In addition, the BOJ’s interest rate hike is also aimed at narrowing the interest rate gap between Japan and the United States and, more importantly, at a gradual return to normalizing monetary policy and promoting sound economic growth.
According to the Japanese economic news, the Bank of Japan, deputy governor of Minoru Ueda True One 7, said in the case of market instability, will not be rushed to raise interest rates. At the same time, he stressed that real interest rates in Japan remained negative even after the increase.
On the exchange rate issue, the US and Japan share a strange dream
Academic circles believe that the depreciation of the yen is not a matter of Japan, the U. S. Factor in which has an important impact. Yingsheng Xiong, chief economist of the Dai-ichi Life Economic Research Institute, said in an analysis in March this year that the depreciation of the yen is not a speculative phenomenon, but is affected by the rise in long-term interest rates in the United States, japan’s so-called“Intervention” has struggled to produce results. Ueno, a Japanese economist, wrote last month that the huge interest rate differential between Japan and the US was the “Driving force” behind the yen’s decline. Arguably, Japan does not hold the“Key” to changing the overall direction of yen depreciation.
Xiang Haoyu told the global times that the depreciation of the yen this year is due to the huge interest rate differential between the yen and the US dollar, which leads to capital outflows and carry trades, spreads of up to 5 per cent are“Unacceptably heavy” for the yen. Most analysts now expect the Fed to cut rates two or three times before the end of the year, with a total range of around 0.5% to 1% . However, given the current weak situation in the Japanese economy, the Bank of Japan may be very cautious in raising interest rates next, and the large interest rate differential between the yen and the US dollar will still exist, making it difficult to change the large pattern of the strong US dollar and the weak Japanese yen, but it is unlikely to fall back to its previous level of around 160 to the yen. Mizuho Bank economist Kamikazu Tang also published an article in Japan’s Toyo Economic Weekly in August last year, saying that in financial policy, the structure of“Hawkish” Europe, and“Doves” Japan will not change in the short term.
In 2022, the Japanese government and central bank spent Y9,200 bn to prop up the yen three times, but only to keep it at about 150 to the dollar, according to an analysis by Japanese economist Y? Takahashi. By June, the Yen had fallen as low as Y160.65 against the dollar, against the backdrop of interest rate differentials between Japan and the US.
The lower-than-expected consumer price Consumer price index in June, according to United States Department of Labor data, suggests that upward pressure on prices is steadily declining. As a result, expectations that the Fed will cut interest rates in September have increased, with currency markets turning to a weaker dollar and a stronger yen, driven by purchases of yen by exporters and others. For this, yavin Yamamoto, chief currency strategist at Mizuho Securities, said: “The yen has risen faster than the market expected, with exporters having to sell the dollar.” The prevailing view is that a turning point in Japanese and n monetary policy is imminent. There has also been a flurry of political outpourings in support of the BOJ’s move to normalise monetary policy, with calls for an interest rate rise. In addition, the upcoming US election is also likely to lead to sharp currency fluctuations, creating uncertainty about the future direction of the yen.
Notably, in June, the US put Japan back on its currency manipulation watch list a year later, citing a surge in its trade surplus with the US and a current account surplus of more than 3 per cent of GDP. The U. S. approach is seen by some Japanese media as“Economic intervention and strong intervention in Japan performance.”. Kiuchi teng-ying, senior economist at the Nomura Institute of General Research, has also said that given the differences between Japan and the US at the G7 summit over their understanding of currency markets, the US and Japan are but two different dreams in the same bed.
“Find a balance between the pros and cons of maximizing profits.”
Wu Jinduo told the global times that the mid-and long-term depreciation of the yen will have an impact on the world, especially on Asian countries with which it has close investment and economic relations. In addition, the yen as one of the world’s major currencies, its exchange rate movements will also have an impact on global financial markets and investment behavior.
First, a weaker yen is good for Japanese exports, which could pose a market risk of competitive devaluations against the currencies of other east and south-east Asian countries such as South Korea and China, which compete with Japan for exports. Especially since the first half of this year, the US dollar continued to strengthen, China, Japan, South Korea currency weakness, causing the market“Asian currency defense war” concerns. Xiang Haoyu told the global times that the depreciation of the yen will raise the prices of imported goods and weaken market competitiveness, and will objectively be disadvantageous to exports from China, South Korea and other countries to Japan. Moreover, a weaker yen would make Japanese goods more competitive in overseas markets, to the detriment of competing exporters.
In addition, Wu Jinduo believes that the depreciation of the yen will attract other countries to Japan to spend and invest. The depreciation of the yen means that other countries’ currencies appreciate, so other countries exchange more yen than before, China, South Korea, the United States and Europe countries to Japan a large increase in tourism. By the same token, a weaker yen would encourage foreign investment into Japan, and the United States and Europe, as well as South Korea and China, might increase their investment in Japan.
The Yen had been a long-term negative interest rate policy, as the interest rate depression, global capital to borrow yen arbitrage, and Japanese stock market support, attracted global capital inflows. This is the impact of the long-term depreciation of the yen on global financial markets. According to the data, the assets of overseas investors held by the BOJ were only about 66.5 trillion yen in April 2020, and as the yen weakened, that number nearly doubled in April.
Wu Jinduo believes that the depreciation of the yen is not conducive to Japanese imports, raising the production costs of Japanese Enterprises, the long-term development of the Japanese economy is not conducive. But many of the benefits of a weaker yen to Japan’s economy are also real. So, weighing the pros and cons, with Japan’s non-financial corporate debt and leverage high and the economy still weak, the Japanese authorities to reverse the long-term depreciation of the yen is very expensive, difficult, and the sustainability of the conditions of doubt, to maintain the long-term low-interest rate depreciation of the yen may be a good choice, the Japanese authorities are also seeking a balance between the advantages and disadvantages of maximizing their interests.
According to Xiang haoyu, the yen is deeply affected by global financial markets, and its depreciation trend highlights the fact that monetary policies around the world lack effective coordination, especially as policy differences among major economies are transmitted through financial markets, have an impact on the global economy and the economic stability of some countries. He believes that although the Japanese government and central bank can slow the decline of the yen exchange rate through market intervention and other means, if there is no fundamental macroeconomic policy adjustment or international policy coordination, the effects of these measures are limited and temporary.
Xiang added that the depreciation of the yen was not only a response to the Fed’s high interest rate policy, but also a reflection of the interdependence of economies and policy spillover effects of the changing global monetary policy environment. Japan and other countries also need to explore broader policy solutions through multilateral dialogue and cooperation to mitigate such spillovers and maintain financial stability.