Written by the editorial team of Today Weekly
In exchange for this, it is almost my salary in Taiwan dollars for the past month. The extra money “out of thin air” is enough for me to take the four round-trip Shinkansen from Tokyo to Osaka, or stay in a five-star hotel for eight more nights… . “The speaker is Komori, who is regarding 30 years old and currently works in the publishing industry in Taipei.
Another identity of Komori is a “Hari clan”. With a monthly salary of less than NT$40,000, he makes “pilgrimages” to Japan at least four times a year on average, and spends at least 120,000 yuan per year on travel in Japan. “Before the epidemic, the Japanese yen exchange rate was 1 Taiwan dollar to 3.6 yen, and now it is regarding 4.3. Assuming that the yen continues to depreciate to 4.6… In this way (my yearly) exchange rate, I can save regarding 26,000 Taiwan dollars.” Komori said in Try it out on paper.
Time goes back to March 28 this year. In the Japanese stock market on the same day, just following the Bank of Japan released a policy news, the yen exchange rate fell to 1 US dollar to 125.1 yen. 1.38% to settle at 123.85 once morest the dollar.
This policy is called “Continuous Specified Price Market Operations”.
On the same day, the Bank of Japan issued a press release announcing that it would launch “continuous designated price market operations” measures to curb the rise in interest rates from March 29 to 31. The so-called “designated price market operation” means that the Bank of Japan will purchase government bonds from private financial institutions in an “unlimited amount” at a designated yield rate (ie bond price).
To put it bluntly, the Bank of Japan announced an unlimited amount of money printing. By buying government bonds from financial institutions, it released funds on the one hand and lowered interest rates on the other hand. In this way, how can the yen exchange rate not depreciate?
Devaluation has benefits and harms
Imports become more expensive and can’t afford stagnant inflation
Spread out the latest Japanese yen forecasts of various foreign institutions; the figure given by Japan’s Sumitomo Mitsui Banking Corporation is that it fell to 135 in the second quarter of this year; British Barclays Securities believes that there is a 30% chance of falling to 140; the most fierce is Societe Generale , in its recent report, gave an epic low price not seen in more than 30 years following Japan’s bubble economy in 1990: 150.
In a recent report from Barclays Securities, the yen depreciation was divided into two scenarios, namely “good depreciation” and “bad depreciation”.
In both scenarios, Barclays assumed the yen would fall to 140. In the “good depreciation” scenario, most of the rising import costs (regarding 80%) of Japanese manufacturers due to depreciation can be passed on. Coupled with the increase in the profits of exporters, on the whole, companies have room to help employees adjust salaries, and the economy will improve. Cycle forward.
As for the “bad devaluation” scenario, Barclays assumes that only regarding 50% of the import costs of manufacturers can be passed on. The increased profits of exporting companies due to the depreciation of the yen are relatively limited. There is no room for employees to adjust their wages. As a result, real purchasing power has declined, and the momentum of economic recovery may stagnate.
On the whole, inflationary pressure is on the rise, “cost pass-through” is not easy, and exporters cannot be overly optimistic regarding the benefits, and the probability of “bad devaluation” seems to be increasing. And when the playbook plays out and the Bank of Japan is finally forced to adjust its easing policy, another risk that global financial markets are worried regarding may accelerate.
Beware of the stock market crash
Yen carry trades have sparked financial turmoil in the past
This risk comes from “arbitrage trading”.
Since Japan’s bubble economy, when it comes to “yen carry trade”, international investors tend to automatically connect with one word: market turmoil. Looking back on financial history, between 1995 and 1997, between 1999 and 2000, at the beginning of 2007, and even between 2014 and 2015, there have been international investors who indirectly triggered global stock market crashes in order to “repay the yen”.
Paul Mackel, head of global FX research at HSBC, said: “With so many uncertainties, the risk from the yen carry trade is not low.”
He explained that at present, whether it is the risk of recession that may be brewing by US hawks raising interest rates, or the deterioration of inflation caused by geopolitics, the status of the yen in investors’ hearts has changed instantly, from the original “cash machine” role. , become a “safe haven”, and when this change occurs, the yen turns to appreciate, and carry trades will become a source of risk that exacerbates global market turmoil. “This kind of change is likely to happen suddenly,” he reminded.
When did the change in the role of the yen happen? After all, it depends on the risk mentality of the global market, but at which price the Bank of Japan will start to change its strategy. “Mr. Yen” Sakakihara Ying, a former Japanese financial officer who has successfully controlled the exchange rate of the yen once morest the US dollar many times during this period, was interviewed by “Today Weekly” , gave an answer: 135.
“If the yen falls below 135, the Bank of Japan will definitely take action. Either it will directly intervene in the foreign exchange market through the Ministry of Finance, or the Bank of Japan will simply start raising interest rates.” He said with confidence. For more content, please refer to the latest issue of Today’s Weekly (No. 1321)
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