Nancai fast comments: Why does the yen depreciate and why the Japanese government intervenes

After March 2022, the yen exchange rate deviated from the stability range (103-115 yen exchanged for $ 1) and entered the depreciation fast lane. On September 22, after the Federal Reserve and Bank of Japan successively issued a monthly financial policy decision, the exchange rate of the yen to the US dollar exceeded 145.8 to 1, updating the lowest value since August 1998. To this end, the afternoon of the same day, the Japanese government (Ministry of Finance) and the Bank of Japan had to implement a large -scale "throwing out of the US dollar and buying the yen ″ for an emergency market intervention. After the intervention, although the yen's exchange rate to the US dollar has risen sharply to 140.4 to 1, the continuity of the intervention effect is still difficult to optimistic.

Why did the yen depreciate rapidly in the past six months? In short, it is mainly because the long -term spread for the United States has a significant expansion.

On March 16, 2022, the Fed decided to terminate the zero interest rate policy introduced in March 2020, raising the benchmark interest rate by 0.25 percentage points to 0.25%-0.50%. The reason why the Federal Reserve has made such a significant directional adjustment is first because the economic recovery of the US epidemic in the past two years has recovered. More importantly, the increase in the price of American consumer prices this year has reached the highest level in 40 years. Following the interest rate hike in March, the Federal Reserve raised interest rates in May, June, and July (0.5 percentage points at a time, two 0.75 percentage points). Nevertheless, the price increase rate of US consumers is still high (more than 8%), which is much higher than the expected target value (2%). to this end. On September 21, the Fed decided to increase the benchmark interest rate 0.75 percentage points to 3.0-3.25%.

Contrary to the direction of the United States' financial policy, the Bank of Japan (Central Bank) still adheres to the loose policy. The Bank of Japan introduced zero interest rates in 1999. Since then, it has tried to withdraw twice, but they all tried it and went further and farther in the opposite direction: in 2013, as the first arrow of Abe's three arrows, the Bank of Japan implemented unprecedented implementation Large -scale quantitative and loose, further launching negative interest rates in 2016. These loose policies have no signs of correction.

The different direction of the US -Japan financial policy not only brings the expansion of the policy spread between the two countries, but also leads to a rapid rise in long -term spreads (10 -year Treasury yield spreads in 10 -year Treasury bond yields), which has a more direct impact on exchange rates. Japan's 10 -year Treasury interest rate has been held below 0.25%by the Bank of Japan, while the US 10 -year Treasury interest rate has risen from about 1.75%by March 2022 to about 3.7%in September. 1.5%before the month expanded to 3.5%.

So, to what extent will the long -term spread of the yen's depreciation — the long -term spread of the United States and Japan will expand in the future? When will reach the peak?

From the perspective of the Japanese side, the Japanese industry, centered on the large manufacturing enterprises, is generally alert to the impact of the appreciation of Japanese yen on the exports of their products. This kind of manufacturing industry's thinking has been supported by the government and the Bank of Japan. "The appreciation of the yen is not conducive to the Japanese economy." However, in recent months, consumers and SME operators have increasingly increasing their concerns about the rapid depreciation of the Japanese yen that brings rising prices and raw materials. Many economists are concerned that the depreciation of the yen has led to a decline in Japan's relative wages, which is not conducive to attracting outstanding talents at home and abroad and developing high -tech industries.

Nevertheless, President of Japan's Bank of Japan, the head of Japan's financial policy, said that the speed and intensity of the Japanese economic recovery after the epidemic lag behind other major countries. Although under the leadership of imported prices, Japan's increase in price increase rates for consumers are expected to reach the target value (2%) he proposed when he took office in 2013, but it is not brought about by economic growth. Therefore, it will continue to maintain the current loose policy and stimulate economic reply. His other unspeakable hidden is: If the financial easing policy changes, it will bring about rising interest rates in Japanese government bonds and the whereabouts of prices, thereby bringing new trouble to the fiscal operation of the Japanese government that is seriously dependent on government bonds. It can be said that before April 2023, which was stepped down, Japan's policy interest rate (-0.1%) and 10-year Treasury bond interest rates (0.25%) were difficult to change.

Under the almost unchanged financial policy of Japan, the Fed's policy trend will basically determine the Japanese and American spreads and exchange rate trends. After five interest rate hikes from March to September, the current Fed's benchmark interest rate is 3.0-3.25%, but its expected value (guidance target) at the end of the year is 4.4%, and there are still about 1.25 percentage interest rate hikes. While the Japanese and American benchmark spreads continue to expand, the long -term spread (10 -year Treasury spreads) that has a greater impact on the US -Japan exchange rate will also remain at a higher level. Most market participants predict that the expansion trend of long -term spreads in the United States and day (currently close to 3.5%) is likely to continue until next spring, and its peak may rise to more than 4.%.

Synchronization with the long-term spread of the United States and Japan, theoretically, the exchange rate of the dollar may continue to decline to the US dollar in theory, falling to the range of 145-150: 1 (or even lower). However, from the perspective of the United States, the continuous interest rate hike has put tremendous pressure on the US financial market and the real estate market. The GDP growth rate forecast in 2022 is only around 1%. For the pressure of market and industry, the Fed in 2023 is likely to stop raising interest rates and even turn to interest rate reduction. From the perspective of Japan, in the face of urgent yen, not only consumers and SMEs who are directly negatively affected, but also many large companies (including Toyota) with high supply -dependence on overseas products. Therefore, under the dilemma of difficulty changing financial policies, the Japanese government and the Bank of Japan will use oral intervention and even a large -scale large -scale "selling USD and buying yen" to intervene more frequently. The market intervention implemented by the Japanese government on September 22 is very strong, and it is estimated that at least tens of billions of dollars are invested. Judging from the above analysis, although such a measure cannot change the basic factors that lead to the depreciation of the yen, it shows the will of the Japanese government's hope of stable exchange rates, and has a certain deterrent effect on many market speculators who sell them. Therefore, "9.22 intervention" has the effect of slowing down the depreciation of the yen. Before the spring of 2023, 145-150: 1 is likely to be a defensive zone to prevent the yen exchange rate from further falling. If the defense is successful, after the spring of 2023, with the changes in financial policies of the two countries, the yen is expected to stop falling.

It is worth mentioning that on September 22, 1985, in order to prevent Japanese products from strong export offensives for the world market, the five major developed countries (the United States, West Germany, the United Kingdom, France, and Japan) signed a famous square agreement to buy together Entering the Japanese yen and intervention in the foreign exchange market, the exchange rate rocket -type of the Japanese yen has soared. On the same day after 37 years, the Japanese government took the initiative to implement the same market intervention, but its background and purpose were very different and excited.

(The author is the director and professor of the Institute of Growth, Japan)

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