Japan Monetary: Defy US, Dollar Rev Prep.
As early as half a year ago, the impending change in leadership at the Bank of Japan had already caught the attention of the global financial community. Now, with the serial bankruptcies in the American banking industry, every move by the Bank of Japan could potentially trigger a chain reaction.
How will the new governor adjust their policies after taking office?
Will the yen take advantage of the turmoil in the American banking sector to deliver a fatal blow?
01. Going Against the Grain with the United States
The new governor of the Bank of Japan, Kazuo Ueda, is a graduate of the Massachusetts Institute of Technology and is well-versed in Western economics.
Since he is referred to as Japan's Bernanke, it is quite likely that he also holds the same view that printing large amounts of money to increase liquidity can solve economic problems.
The reality in Japan seems to support this notion. Over the years, regardless of how the international economic situation has changed, Japan has consistently maintained extremely low bank interest rates and a loose monetary policy. Even after the Federal Reserve significantly raised interest rates last year, Japan did not make any changes.
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This has led to the United States having interest rates that are much higher than those in Japan, causing a significant devaluation of the yen, and ultimately forcing the Bank of Japan to spend a staggering 9 trillion yen to intervene in the market.
However, perhaps what has been overlooked is that for so long, the Bank of Japan's monetary strategy has been moving in the opposite direction to that of the United States. While the U.S. needs to tighten its monetary policy, Japan continues to pursue monetary easing.
After Kazuo Ueda takes office as the central bank governor, he might once again go against the grain with the United States, potentially dealing a fatal blow to the U.S. dollar.02, Prefer to Spend Money to Save the Market
Perhaps starting from the previous Bank of Japan, they have been waiting for this opportunity.
In March last year, the Federal Reserve began to raise interest rates, and the magnitude of the rate hikes increased. Some countries, to show solidarity with the United States, proactively raised interest rates. Others, out of necessity, did not want their currencies to depreciate too much and passively followed the rate hikes.
However, Japan did not follow the United States in raising interest rates. Instead, it withstood the pressure and continued to implement quantitative monetary easing policies, continuing to flood the market, which was the most surprising aspect.
The rapid depreciation of the yen has also led to many problems, with some Japanese companies going bankrupt and leaving Japan, causing capital outflows and chaos in the financial markets.
To prevent the yen from falling too much, the Japanese government and the Bank of Japan began to save the market in three rounds from September last year to late October, selling a total of 90,000 billion yen equivalent in US dollars, and continuously buying yen in the foreign exchange market to stabilize the exchange rate of the yen.
The Japanese are extremely good at enduring, and even at this point, they still did not take action, but endured and waited for an opportunity to regain their former glory.
After all, for the Bank of Japan, raising interest rates is an easier choice to make.
03, Waiting for the Opportunity
Once, Japan almost won the crown of the global economy and even had the ability to buy the entire United States, but it was trapped by the dollar back then, leading to a loss of national fortune for 40 years.What does Japan plan to do now?
Currently, to cope with the rising prices in Japan, with inflation exceeding 4%, Japan has adopted the approach of significant pay raises and direct cash subsidies.
For other central banks, controlling inflation through interest rate hikes is an inevitable choice, but Japan has once again overlooked this option.
On the other hand, Japan's trade deficit continues, having lasted for 19 consecutive months.
The yen is continuously being devalued, and import costs are increasing, so Japan's current actions are out of necessity. The continuous devaluation of the yen is not favorable for imports, but it also does not benefit exports, as the current economic downturn in Europe and America means they simply do not have the capacity to import from Japan.
Japan has successfully resisted this wave of American harvesting, and perhaps the opportunity to turn things around is imminent.
04, On the verge of reversal
Recently, the US economy has shown many signs of collapse, with a series of bank bankruptcies indicating that interest rate hikes have reached their limit.
It is very likely that starting in May of this year, the US will halt interest rate hikes and then begin to lower them.
The Federal Reserve has not yet started to lower interest rates, but the US dollar index has already begun to decline. Once the rate cuts begin, the depreciation of the US dollar will be even more severe.The Bank of Japan is waiting for this opportunity. After the Fed stops raising interest rates, Japan is likely to suddenly implement a monetary policy shift on the grounds of controlling inflation. Once Japan starts raising interest rates, the yen may appreciate by 60% against the US dollar. Taking advantage of the depreciation of the US dollar and the sharp drop in US domestic asset prices, Japan can then conduct a reverse harvest, whether it is buying US corporate equity or real estate projects or harvesting in the US bond market. For Japan, it can easily achieve this. Perhaps Japan's national destiny has reversed.
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