The yen is depreciating as the market recognizes that the Bank of Japan, which lifted negative interest rates on March 28, will move forward with financial normalization “slowly.” Photographed on the 18th in front of the Bank of Japan head office in Tokyo (2024 Reuters/Kim Kyung-Hoon)
TOKYO (Reuters) – The yen is depreciating as the market recognizes that the Bank of Japan will move forward with financial normalization “slowly” after lifting negative interest rates. While the Bank of Japan’s policy stance can be expected to have the effect of curbing the rapid decline in stock prices and sharp rises in interest rates, it is also clear that the yen is likely to weaken further as a reflex effect.
While expectations for a June interest rate cut seem to be receding due to comments from Federal Reserve executives, the dollar’s appreciation and yen’s depreciation are likely to continue, leading to another rise in import prices and the consumer price index (CPI). This increases the risk that real wages will continue to be negative and consumption will stagnate due to the fact that wages remain high. There is a possibility that the government will be forced to extend the electricity and gas rate support measures, which were reported to end in May, and that the Bank of Japan will become cautious about consumption trends, leading to the current depreciation of the yen. has the power to greatly influence the policy path of the government and the Bank of Japan.
In the Tokyo market on the 27th, the dollar/yen pair temporarily hit 151.975 yen, the weakest yen level in about 34 years. Many foreign exchange market participants believe that what accelerated the yen’s depreciation was the statement by Bank of Japan Councilor Naoki Tamura, who said, “We will slowly but steadily advance financial normalization.”
On the evening of the same day, Finance Minister Masato Kanda stated, “We will not exclude any means and will take appropriate measures to deal with excessive moves,” and the market took this to mean that the authorities had declared that “we can intervene at any time.”
According to multiple market participants, once the dollar breaks through 152 yen, there will be few notable milestones on the chart, and the dollar could reach around 155 yen in a short period of time, with the possibility of further acceleration. It is safe to say that the foreign exchange market is approaching a major turning point.
Looking at this situation from the viewpoint of the policy mix of the government and the Bank of Japan, the Bank of Japan has lifted negative interest rates while emphasizing that “an accommodative financial environment will continue for the time being.” It can be said that the government has chosen a policy that gives top priority to not leading to a significant decline in the stock price.
Although the Japan-U.S. interest rate differential will continue to be large for the time being, creating an environment where the yen is likely to depreciate, if the government shows a strong stance of intervening to buy the yen, there is a small chance that the yen will depreciate rapidly in the short term. I think the author probably expected that there would be no such thing.
However, in the market up until the 28th, the yen’s depreciation was noticeable at a rapid rate, and Finance Minister Kanda strongly suggested a “standby” intervention.
To put it simply, I would like to point out that wrinkles in the policy mix of the government and the Bank of Japan have surfaced as the yen’s depreciation in the foreign exchange market.
From the perspective of Japanese authorities who want to stop the yen’s depreciation, the timing is inconvenient in the short term. In a speech at the New York Economic Club on the 27th, Fed Director Waller said, “We are in no hurry to lower the policy rate (at this point),” and “We are in no hurry to lower the policy rate (at this point),” and “in order to keep the inflation rate on a sustainable path toward 2%.” “It would be prudent to keep interest rates in their current constrained stance, perhaps for longer than previously assumed.”
The market is dominated by expectations that the U.S. price will fall in June, but Waller’s statement seems to have thrown cold water on that view.
Additionally, on the 29th, the US Personal Consumption Expenditure (PCE) price index for February will be announced, and if the results are strong, it will be strongly perceived as a factor in the dollar’s appreciation and the yen’s depreciation. In that case, Waller’s comments will be reaffirmed, and pressure on the yen to depreciate is expected to increase further.
This strong influence on the yen’s depreciation will have both positive and negative effects on the Japanese economy.
First, on the positive side, stock prices will continue to rise, led by export stocks, and the Nikkei Stock Average (.N225), opens new tab, will likely aim for 42,000 yen.
On the other hand, on the negative side, import prices will begin to rise again with a certain time lag, and the prices of goods such as foodstuffs that have stabilized will rise again, increasing the rate of increase in the CPI from the 2% range to 3%. Possibilities arise.
As a result, the “comprehensive CPI excluding imputed rent for owned homes” used to calculate real wages will remain at the 3% level, and even if a base increase of 3% is secured in the 2024 spring labor union, the real wage will be negative. This will increase the risk of becoming
If that happens, Prime Minister Fumio Kishida, who has been calling for wage increases to exceed the rise in prices, will not be able to fulfill his “pledge”, which could lead to a further decline in approval ratings. On the 28th, Kyodo News and other news outlets reported that the government was making adjustments to temporarily end subsidies to reduce electricity and gas costs at the end of May, but this subsidy payment would have to be extended and a new There is a possibility that the government will go down a path that will incur significant financial burden.
The Bank of Japan has been predicting that real wages will turn positive due to large wage increases, but if that forecast is reversed, the virtuous cycle of wage increases, increased consumption, and increased corporate sales will be forced to undergo major revisions.
If faced with such a situation, the scenario for considering interest rate hikes would be forced to be drastically revised, given the possibility of increased consumption, an improving economy, and higher inflation expectations.
If a significant depreciation of the yen can be avoided due to changes in the domestic and international situation, the effect of the route of price increases from the depreciation of the yen will be reduced, and consumption expansion will be realized due to the effects of large wage increases and the government’s fixed tax cuts, which is what the government and the Bank of Japan envisioned. There are still developments that will lead to a positive cycle of wage increases, consumption expansion, and production expansion.
In this sense, I would like to point out that whether the current depreciation of the yen will develop rapidly or will be temporary will have a major impact on the future policy development of the government and the Bank of Japan.
●Background news
・UPDATE 1- Finance Minister Kanda, the government and the Bank of Japan share the same understanding that “speculation is obvious” behind the weak yen See more
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2024-03-28 22:34:00
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