musicalbingonearme| The yen collapsed!

What I saw on Wall Street

In the early hours of Saturday morning Beijing time, the yen continued to fall, and the dollar broke through the 158 mark against the yen in intraday trading, reaching 158.Musicalbingonearme.05 front line, range is 1.Musicalbingonearme.5%.

As of press time, the USDJPY is approaching the first line of 158.3, constantly setting a 34-year low.

On Friday night, Beijing time, the dollar broke through 157 against the yen in intraday trading, reaching 157.40, up 1.1% on the day for the first time since May 10, 1990.

EURJPY maintained a rise of more than 0.5%, fluctuating below 168. Bank of Japan governor Kazuo Ueda rose to 168.35 after the press conference, approaching the phased top 169.96 on July 23, 2008.

The pound maintained a gain of about 0.7 per cent against the yen, hovering above 196. The US PCE inflation index rose to 196.597 when it was released, approaching the phased top 200.373 on August 29, 2008, and reached 223.770 on January 1 of that year. The yen fell below 156, 157 and 158 against the dollar in intraday trading, hitting its lowest level since 1990 on the 5th and falling to the 160 mark seen by some analysts as likely to trigger Japanese government intervention.

The yen has fallen 10% so far this year, the worst performance of the G10 currencies, and the Bank of Japan is indifferent to this, do nothing, and then the yen will continue to fall, a complete collapse?

The yen has collapsed! Japan "lie flat"?

The yen fell below 158 on Saturday, losing several important levels in one day, while the Bank of Japan continued to watch the yen fall with a cold eye.

On Friday, April 26, the Bank of Japan held its April interest rate meeting as scheduled, and the current loose financial environment is expected to continue, deleting the phrase "buy the same number of bonds as before."

The central bank said it was necessary to pay attention to foreign exchange and its impact on inflation, price risks tended to rise in fiscal 2024, and monetary easing would be adjusted if the price trend rose.

After issuing the shortest statement in history, they just. Gone--

Like an "outsider", watching the free fall of the yen does nothing to boost the yen, as if he does not mind following the old path of Zimbabwe.

With the BoJ showing little sign of boosting the yen, the yen fell below the 156 mark against the dollar, hitting a 34-year low.

Since then, on Friday night, Beijing time, as PCE prices at the core of US inflation data rose slightly more than expected to 2.8 per cent year-on-year in March, the yen fell further against the dollar, losing the 157s mark and losing an important mark for a day in a row. The yen continued to "freefall" on Saturday, with the USDJPY breaking through 158 in intraday trading, setting a 34-year low.

Some analysts say the yen is incredibly weak and has fallen too much. This level of decline is bound to cause concern.

On the other hand, a series of "inaction" actions of the Bank of Japan have made traders feel "laughing and crying".

Charu Chanana, capital markets strategist at Saxo, said the BoJ had proved once again that its dovish attitude could surprise even Wall Street's most dovish expectations. Markets are back to waiting for intervention to stop the yen from plummeting. But any intervention that is not co-ordinated and supported by hawkish policy messages will still be futile.

The yen has plummeted one after another. where is the final moment?

The yen has fallen to an all-time low again, and everyone is wondering what will happen next. Will the yen collapse completely?

Geroge Saravelos from Deutsche Bank believes that a weaker yen is not a bad thing for Japan. Kit Juckes of Soci é t é G é n é rale said there could be a final, sharp fall in the yen before it hit bottom.

MusicalbingonearmeLet's take a look at the latest views of these two big foreign banks on the yen.

Deutsche BankMusicalbingonearmeThe Bank of Japan's "governance by doing nothing" can be attributed to "well-intentioned neglect"

Deutsche Bank's Geroge Saravelos argues that the Bank of Japan's inaction can be blamed on a "well-intentioned neglect".

The weakening yen is not a bad thing for Japan, he said, as tourism is booming, Nikkei profit margins are rising and exporters are more competitive. Moreover, there is no inflation problem in japan, with the core consumer price index of about 2%, which has been falling in recent months. In addition, negative real interest rates are attractive for the consolidation of government balance sheets.

As for strengthening the yen, Saravelos believes the Japanese need to unwind their carry trade. To make this more meaningful, the Bank of Japan needs to pick up the pace and raise interest rates as other central banks did after the epidemic.

Next, let's take a look at how Deutsche Bank's foreign exchange strategists simply blame the Bank of Japan's inaction on "well-intentioned neglect":

On the collapse of the yen fell again to an all-time low, this is the situation after the Bank of Japan meeting. We think this is reasonable and a sign that the market is finally aware that Japan is pursuing a policy of well-intentioned neglect of the yen.

We have long believed that foreign exchange intervention has no credibility. In terms of credibility, the finance minister's statement last night was generally positive.

If the market becomes chaotic, the possibility of foreign exchange intervention cannot be completely ruled out, but it is worth noting that the governor of the Bank of Japan played down the importance of the yen at a press conference and said there was no urgency to raise interest rates.

In this context, we will describe the current collapse of the yen from the following points:

1. For Japan, the weakness of the yen is not so bad.

Tourism is booming, Nikkei profit margins are rising and exporters are more competitive. Indeed, the cost of imported goods is rising. But growth is good, the government is helping to offset some of the costs through subsidies, and core inflation is not accelerating. More importantly, Japan has a large amount of foreign assets with its net international investment position.

As a result, a weaker yen has generated huge capital gains on foreign bonds and equities, the most intuitive example being the government pension fund (GPIF), which made more profits in the past two years than in the previous two decades combined.

2. There is no inflation problem in Japan.

Japan's core CPI, at about 2%, has been falling in recent months. Excluding the one-off effect, the Tokyo consumer price index released last night was 1.7 per cent.

Indeed, inflation is likely to accelerate again because of weaker exchange rates and rising wages. But the starting point for inflation is completely different from the post-epidemic rate-raising cycles of the Federal Reserve and the European Central Bank.

As a result, there is less pressure from inflation and less urgency to raise interest rates. The clearest evidence is that Japanese consumer confidence is close to cyclical highs.

3. Negative real interest rates are very favorable.

Maintaining negative real interest rates is very attractive for consolidating government balance sheets. As we proved last year, this creates fiscal space through a $2000 trillion carry trade and asset gains for Japan's wealthy electorate.

This has contributed to the domestic capital outflows that we have stressed over the past year, a key factor in the weakening of the yen and making Japan's broad basic balance of payments one of the weakest in the world. It is not the speculators who weaken the yen, but the Japanese themselves.

Foxing: there may be a final, sharp fall in the yen before it hits bottom

Kit Juckes, a foreign exchange strategist at Societe Generale, is more operational.

He believes that the decline in the yen has become disorderly, suggesting that there may be a final sharp fall before hitting bottom.

He added that the earnings gap between the dollar and the yen would narrow significantly in the coming quarters. However, US yields are rising, while Japanese yields are still supported by very low short-term interest rates, which provide positive gains for shorting the yen and keep the leveraged trading community optimistic over the past few months.

The details are as follows:

The fall in the yen has become disorderly, suggesting a final and possibly sharp fall before bottoming out.

As widely expected, the Bank of Japan did not change interest rates at today's policy meeting, although they did raise their inflation forecasts. Forecasts for fiscal year 2025x26 show core inflation (excluding food and energy) of 2.1 per cent and real GDP growth of 1 per cent.

In Japan, like most countries, bond yields tend to be higher than nominal GDP growth in the long run. On this basis, the earnings gap between the dollar and the yen will narrow significantly in the coming quarters.

At present, however, US yields are rising, while Japanese yields are still supported by very low short-term interest rates. These low short-term interest rates have provided positive gains for shorting the yen, keeping the leveraged trading community optimistic over the past few months.

The chart shows the relationship between the dollar / yen exchange rate and the income gap between the United States and Japan over the past 20 years, which is extended by the Organization for Economic Cooperation and Development (OECD) earnings forecast.

These are just forecasts, but they frame the problem fairly well, especially given the extent to which the yen is currently undervalued, no matter in terms of any basic long-term valuation.

If the purchasing power parity of USD / JPY is now at the mid-90s level, the fair value is still about 110 even after US exceptionalism and Japanization adjustment. As long as the income gap is wide and widening, the dollar / yen will still face upward pressure and will eventually return to around 110.

The risk here is that unless Japanese policymakers take more aggressive action (intervention and monetary policy), the dollar / yen rally could end in an excessive surge.

When will the Bank of Japan act?

Japanese policymakers have repeatedly warned recently that it will not be tolerated if the yen depreciates too much and too fast. Japanese Finance Minister Suzuki Shunichi reiterated after the Bank of Japan meeting that the Japanese government will respond appropriately to foreign exchange changes.

According to a previous analysis by Makoto Kanda, the top monetary official of Japan's Ministry of Finance, 157.60 is a key level worthy of attention. JPMorgan Chase and Bank of America see 160 as the next milestone. JPMorgan's Julia Wang said:

The key is how we can reach the 160 mark. If the yen falls too fast and disorderly, the likelihood of intervention will increase.

T. Rowe Price had previously said it was considering the risk of the yen falling to around 170, a level last seen in the 1980s.

Kazuo Ueda, governor of the Bank of Japan, said at a news conference on the 26th that foreign exchange may be an important factor affecting inflation, and if it affects price trends, foreign exchange may become a reason for policy considerations, but the depreciation of the yen has not yet had a significant impact on core prices, and the weakness of the yen will also have a positive impact on demand:

On the one hand, if the yen continues to be weak, there is the possibility of a negative impact on consumption, which can not be ignored in driving up costs. Rising import prices have a lagging effect on the impact of services, but import inflation is not as rapid as it was seen in 2021-2022.

Deutsche bank's Saravelos said that if the bank of japan's inflation forecast far exceeded 2% within its forecast period, it would be the clearest sign of a change in policy response. But this has not happened yet, and the Japanese are enjoying the process. In a trilateral statement last week, the US, Japan and South Korea said they would continue to hold close consultations on the development of foreign exchange markets, while acknowledging the serious concerns of Japan and South Korea about the recent sharp devaluation of their currencies.

Asked Thursday about Japan's possible steps to respond to the depreciation of the yen against the dollar, U.S. Treasury Secretary Yellen said that for big countries with market-determined exchange rates, intervention should occur only in very rare circumstances.

From the point of view of the members of the Group of Seven countries, exchange rate adjustment in the market is one of the bases for countries to have different policies. "We would hope that this is rare and think that this kind of intervention is rare, only in excessive volatility, and they will negotiate in advance." (editor Wang Li)

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