2023-06-28 00:05:17
Even with the depreciation of the yen, the sense of urgency has not increased as much as last fall, when the government and the Bank of Japan intervened to buy the yen for the first time in 24 years. In addition to the interest rate hikes by central banks in the United States and Europe entering the final stages, the positive aspects of the yen’s depreciation are increasing as the Japanese economy emerges from the corona crisis.
One of the key changes from last fall is the market consensus that the rate-hiking cycle of major central banks, including the Federal Reserve, is coming to an end. On the other hand, there is a strong view that the Bank of Japan’s next move will be to tighten monetary policy, and it is restraining dollar buying and yen selling focused on the Japan-US interest rate differential.
“The Fed is approaching its terminal rate. It will probably raise rates one more time, maybe two at most,” said Jun Takeda, chief economist at Itochu Research Institute. He said that there is no momentum for the depreciation of the yen like last year, and “I don’t think the yen’s depreciation pressure will continue to increase from here.”
The recent strong economy is also alleviating corporate and consumer concerns about the yen’s appreciation. While the weaker yen has increased import costs, it has also led to higher profits for exporters. A number of listed companies are posting record profits for the fiscal year ending March 2023. Inbound consumption due to an increase in the number of foreign visitors to Japan after the coronavirus crisis was over, pushed up the real gross domestic product (GDP) growth rate for the January-March quarter by as much as 1.1 percentage points.
According to Takeda, “Unlike last year, foreign tourists are rapidly returning, and the weaker yen is benefiting the local economy.” “That’s one of the big reasons why criticism of the yen’s depreciation hasn’t spread as widely as it did last year,” he said.
Bloomberg Economics view
“It can be said that resistance to the yen’s depreciation in companies and households has eased compared to last year. The recent rise in stock prices may also bring a sense of security from a sentiment perspective. If the yen continues to depreciate to the latter half of the yen level, it is likely that there will be a political aspect, such as the authorities threatening to intervene.”
Taro Kimura Senior Economist
The weaker yen also helps the Bank of Japan achieve its price stability target of 2%. With consumer prices (core CPI excluding fresh food) expected to slow down, if prices remain high due to the weaker yen, it could underpin inflationary expectations, which tend to be dragged down by actual prices. Although there are concerns about the impact on personal consumption, if corporate earnings continue to be strong, supported by a weaker yen, a high level of wage hikes in next year’s spring labor offensive are within sight.
If the gradual depreciation of the yen eventually leads to the reversal of 20 years of large-scale monetary easing, it could lay the groundwork for a long-term appreciation of the yen.
Deer and tourists in front of Todaiji Temple in Nara
Photographer: Soichiro Koriyama/Bloomberg
The 145-yen level, where the government and the Bank of Japan intervened in September last year to buy the yen and sell the dollar, is in sight, and the market is becoming more cautious about intervention. In the foreign exchange market on the 28th, 1 dollar = just around 144 yen, the highest since November last year. On the morning of the same day, Finance Minister Masato Kanda put a check on the market, saying, “If there is an excessive movement, we will respond appropriately.” After that, yen-buying intensified, and the exchange rate remained in the upper-143 yen range.
The foreign exchange report released by the US Treasury Department on the 16th excluded Japan from the list of foreign exchange manipulators to be monitored for the first time. Despite Japan’s decision to intervene last year, it was not judged to be a sustained and unilateral response.
Regarding interventions, the conventional explanation of the Japanese currency authorities is that they emphasize excessive fluctuations and speed rather than the level. When the pair approached 146 yen in September and 152 yen in October last year, the dollar/yen pair moved more than 2 yen within 24 hours. Current volatility is much lower than last fall. The government and the Bank of Japan conducted yen-buying/dollar-selling interventions three times in September and October last year, and the total amount reached 9.2 trillion yen.
[Viewpoint]The market is skeptical about the realization of foreign exchange intervention, the dollar is also declining, and the yen is weaker than last year
Hideo Kumano, chief economist at the Dai-ichi Life Research Institute, said, “Even though we did it last year, it’s still a family treasure.
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