A look at the factors that caused the “JPY” to fall to a 20-year low amid the economic conditions and monetary policy of “Japan” that contradicted many countries, especially the “US”.
A look at the factors that caused the “JPY” to fall to a 20-year low amid the economic conditions and monetary policy of “Japan” that contradicted many countries, especially the “US”.
As many people know that in recent years The “Yen” weakened a lot. Most recently, last Friday (15 Apr) the yen fell to 126.36 yen once morest the US dollar. Breaking the record for the lowest price in 20 years which right hereThis is a result of the Federal Reserve’s (Fed) policy rate hike.
However, this rate hike occurred in accordance with the economic situation of the United States. that have to suffer from oversupply of liquidity and high inflation consistent with many other countries around the world but it seems The Japanese economy will not face such conditions. It continues to announce additional economic stimulus plans this year.
from the above So we can summarize the key factors that cause the yen to weaken. and explained as follows:
- Monetary policy divergence
Japan’s economic stimulus As a result, the monetary policy continued to expand. The opposite of the US wanting to withdraw liquidity in the economy. Extract the intensity of inflation that arises from both the economic recovery and the war. which had to resort to shrinking monetary policy This monetay policy divergence is what caused the yen to weaken in 20 years.
In the past March The Fed raised its policy rate for the first time in more than two years, from 0 – 0.25% to 0.25 – 0.5% a year. Which has signaled to raise interest rates 6 more times this year, with each increase of 0.25%. QE measures will be withdrawn following interest rates have been raised. Goldman Sachs expects that to happen in the fourth quarter of this year.
such policy direction causing liquidity in the economy to decrease The heat of the economy and inflation has slowed down accordingly. while makingReturns on depositing and investing in US assets have also increased.
on the contrary Japan does not face the same situation as the United States. The inflation forecast for full 2022 is just 0.5% annually, regarding 3% lower than the United States. The Japanese government therefore continues to accelerate the economic stimulus. Although the policy interest rate is very low at -0.1% and other monetary measures continue that already exists
During the month of March In the past, it was reported that Japan’s parliament has approved the 2022 budget of $900 billion. Breaking the record for a record high There may also be additional stimulus measures to be issued from now on.
The result of this stimulus move is that the Japanese government continues to add more liquidity to the economy. while makingReturns on deposits and investments in Japanese assets continue to be low.
When comparing the situation of the US and Japan, the yield on US assets has entered an uptrend. and has a direction that continues to rise further The opposite of Japanese assets that are still in a downtrend.
As a result, there was a huge demand to sell the Japanese yen in exchange for the US dollar. leading to the net capital outflow andThe larger the net capital outflow is. It is the result of the depreciation of the money only.
- different situation and the need to stimulate the Japanese economy
Policy changes are often reflected in the country’s economic conditions. Therefore, the difference in economic conditions between the United States and Japan Therefore, the policy implementation is in opposite directions. and lead to the depreciation of the yen as shown
The United States, a large economy recovering from the Covid-19 crisis. quickly over the past year. send citizens to be able to return to normal life stimulate the price of goods and services to rise rapidly and continuously byUS inflation in December 2021 hit a 40-year record to 7%, prompting the Fed to signal a rate hike since late 2021.
in addition As of 2022, US inflation levels will continue to remain high. by inflation in Jan. and February hit a record high in 40 years, reaching 7.5% and 7.9% per year, respectively. This figure does not include the impact of the war. but mainly as a result of economic recovery
Therefore, inflation will be more intense. from being aggravated by rising energy prices during the warThe Fed’s key agenda is to maintain economic stability. or control the inflation level to be within the target range As a result, the US needs to withdraw liquidity from the system by adjusting its policy direction for the first time in two years.
meanwhile Japan is still struggling with the economic scars caused by the 1990 economic crisis. which made the economy in a stagnation for more than 2 decades, known as “Lost Decades”
Although the Japanese government in every era has always tried to stimulate the economy. but a condition known as The liquidity trap and the aging society that prevent the government’s economic stimulus policies can not generate as much economic growth as it should be. This reflects the fact that Japan has been experiencing deflation for 15 years continuously.
However The budget for implementing economic stimulus policies comes from public debt. Japan’s public debt-to-GDP ratio has hit 100 percent since 2001 and surpassed the 200%-to-GDP figure in 2010.
However, the Japanese economy is still in a sluggish state. and has also been aggravated by the effects of this Covid-19 crisis as well, which is whyThe government must continue to stimulate the economy. As recently as 2021, Japan’s sovereign debt stood at 270% to GDP, a record high in the world.
Still The Japanese government’s expenditure is the main conduit for the Japanese economy to continue. If the Japanese government adopts a shrinking monetary policy, it might mean disaster for the Japanese economy. For this reason, Japan needs to continue to implement economic stimulus policies. Even if it’s once morest other countries
from all of the above Therefore, it is a key trigger that caused the yen to fall heavily in 20 years and is likely to continue to fall further. from the conditions of Japan’s economic situation that will cause the monetary policy differences to continue
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