2024-04-12 00:32:26
In the foreign exchange market, the exchange rate of the Japanese yen against the U.S. dollar fell to 153 yen per U.S. dollar for the first time in 34 years, breaking through the 152 yen per U.S. dollar that has always been considered the line of exchange rate intervention in the market. Market participants have become increasingly wary of the Japanese government’s intervention in the yen exchange rate. The main reason for the continued depreciation of the yen is the significant appreciation of the US dollar against the backdrop of continued inflation in the United States. Many people believe that even if the Japanese government intervenes, it will not be able to sustainably appreciate the yen. Against the backdrop of the disillusionment of early U.S. interest rate cut expectations, the game between the Japanese government and the market seems to be intensifying.
It was around 8 a.m. on April 11. About 30 reporters and photographers gathered in front of the Finance Office of the Ministry of Finance of Japan. Financial officer Makoto Kanda, who appeared in front of reporters, said calmly, “The current fluctuations are violent, and in the face of excessive trends, we will take appropriate measures without excluding any means.”
In the New York foreign exchange market on April 10, the yen once plummeted to 153.24 yen per U.S. dollar, hitting its lowest level since June 1990. On the evening of April 10, the exchange rate had been hovering around 151 yen, which once depreciated by more than 1 yen.
The opportunity for the accelerated depreciation of the yen was the U.S. Consumer Price Index (CPI) for March released by the U.S. Department of Labor on April 10. The core index excluding food and energy increased by 3.8% year-on-year, exceeding market expectations. At the same time, what the market was aware of was the voice of warning about rising inflation that appeared in the minutes of the US Federal Open Market Committee (FOMC) meeting (held on March 19-20).
As expectations of the U.S. Federal Reserve (FRB) starting to cut interest rates in June quickly faded, the U.S. dollar appreciated across the board against other currencies. “Fed Watch”, which analyzes the market’s forecasts for monetary policy prospects through the movement of U.S. interest rate futures, shows that the forecast that interest rates will be cut at the FOMC meeting on June 11-12 has increased from 50% on April 9. dropped to 20% on the 10th.
Previously, the market had believed that the foreign exchange intervention line was 152 yen per US dollar. However, the Tokyo market on the morning of April 11 did not show any movement in the “rate check” that was the previous stage of intervention. Kanda’s financial officer said that he did not believe that (a fluctuation of about 1 yen per night) was too large. The intervention, as always, remained at the verbal stage.
Incidents occurred one after another in overseas markets. At the European Central Bank (ECB) Board of Governors meeting held on the evening of April 11, Japan time, President Lagarde’s statement on cutting interest rates in June was the focus of attention. If the likelihood of a rate cut becomes stronger, the yen could weaken further as the euro weakens against the dollar. Yen intervention implemented at this stage is difficult to produce sufficient results.
The market’s focus is shifting to when the intervention to buy yen will be carried out. “The boundary of foreign exchange intervention at 152 yen per U.S. dollar was suddenly breached. (We are currently in a situation where) it is no surprise when foreign exchange intervention is carried out,” said Motoge Sakai, head of the market operations section of the Treasury and Foreign Exchange Department of Mitsubishi UFJ Trust Bank. ”. The sense of vigilance in the market is increasing.
The target exchange rate level for intervention by the Japanese government and the Bank of Japan has also become a focus. Takebe Riki, a senior strategist at Okasan Securities, also said, “If intervention is carried out, 152 to 153 yen will be used as a line of defense. If no intervention is performed, the yen may accelerate its depreciation.” Many people believe that around 153 yen is the next line of defense. Yujiro Goto, chief foreign exchange strategist at Nomura Securities, pointed out that “if there is no intervention, the yen may depreciate to 155 yen (1 U.S. dollar) by mid-April.”
The last time the Japanese government and Bank of Japan implemented foreign exchange intervention was in 2022. Foreign exchange intervention of buying Japanese yen and selling US dollars was implemented a total of three times. The first intervention occurred on September 22, 2022, when the exchange rate exceeded 145 yen per US dollar. The intervention caused the yen to appreciate by nearly 5 yen for a time. However, within the next two weeks, the yen fell again to around 145 yen. The decisive intervention again on October 21, 2022 caused the yen exchange rate, originally at 151.94 yen, to rise to around 144 yen. The intervention again on the following Monday (October 24) successfully prevented the yen from depreciating again.
On the other hand, there are also many views that the yen appreciation effect brought about by this intervention will not last. The 10-year Treasury bond yield, an indicator of U.S. long-term interest rates, once hit around 4.5% on the 10th, which is higher than around 4.2% at the time of intervention in the foreign exchange market in 2022. In the context of the Bank of Japan still maintaining a loose monetary environment after lifting negative interest rates, the interest rate gap between Japan and the United States has widened. This economic fundamental will not be changed by exchange rate intervention, so even intervention cannot bring about continued appreciation of the yen.
In addition, domestic investors in Japan have deep-rooted demand to buy U.S. dollars. Consultant Haruna Tanaka of Resona Bank believes that “importing companies currently have a strong demand for U.S. dollars. Even if intervention can bring about appreciation of the yen, buying U.S. dollars based on actual demand may inhibit the appreciation of the yen.” There is also a view that intervention to buy yen requires the use of foreign exchange reserves. If you want to avoid the period when “no results will be achieved even if you try hard” and maximize the effect, you need to wait until the demand for dollars has subsided before implementing it. intervention.
At present, most market participants no longer have expectations for the “Federal Reserve to start cutting interest rates in advance and promote the appreciation of the yen against the US dollar” envisaged in early 2024. While many people believe that there is “no reason to buy the yen”, the depreciation of the yen has different consequences due to the different timing and scale of foreign exchange intervention by the “largest yen buyer” who carries out trillions of yen at a time. May not be blocked.
Nihon Keizai Shimbun (Chinese version: Nikkei Chinese website) Ryo Saeki
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