apologies if this is naive, im just a simple man trying to understand what is going on.
1usd currently buys 156 yen. this is because interest rates in japan are low, and the “risk free” us government bond rate is 5.25% vs the 0.1% that japan offers, so naturally more people would demand usd instead of jpy so they can enjoy the 5.25% risk free. the yen will continue to stay depressed unless there is a cut by the fed or a hike by boj.
the fed cant cuz cuz inflation will run, but they cant hike either cuz so many regional banks that offer loans to small businesses are insolvent at current i/r. the boj cant hike interest rates cuz where will the money to pay for interest payments come from? they already run a 6% budget deficit, so they would need to either raise taxes to pay for higher interest rates or print money, and we all know which one is more politically convenient (printing money).
so whats going on in Japan now, is the boj just stuck? what are the implications of this on business, investment, and everyday people? seems to me the everyday saver and most normal japanese with assets in japan are just gonna get fucked?
would appreciate any insight and please be patient in explaining this to me, im just trying to figure out whats going on
by limpoko
9 comments
Yeah we are probably going to be spending USD in Japan pretty soon as JPY will be insolvent soon. It’s only going to get worse from here I predict ¥175 to the dollar by Mid-Summer.
The BoJ will aim for a stable 2% inflation rate, like many central banks. Differences between countries are caused by underlying differences, a) growth in the real economy b) how much debt governments are taking on.
The cheaper the yen gets the better Japanese industries should perform. And the higher US interest rates the more their government’s debt is growing. At the point where they reach a similar debt-to-GDP level to Japan you’ll probably see interest rates come into line with each other and the exchange rate will stabilise, if not before.
Raising rates doesn’t affect existing bonds. It would make it harder to issue new bonds however.
I think the major reasons BOJ doesn’t want to raise rates are, inflation isn’t that bad (so they say) and doing so would make lending more difficult, and people wjth variable home loan rates would see higher payments which would altogether hurt the economy.
yen weakness is not just issue with BOJ unable to make a move. Yen is weak mainly because not enough countries buy yen to buy Japanese goods and services. On the other hand Japan is buying USD to buy US services like Amazon, google, Netflix as well as oil, raw materials etc. Furthermore Japanese companies are investing overseas and not sending money back home for obvious reasons.
Why would the BOJ want a stronger yen? What’s wrong with the current exchange rate from the BOJ perspective?
The BOJ’s legal mandate is “price stability,” which they’ve decided means a 2% CPI growth target.
March’s YoY inflation was 2.7%. Inflation has been on a descending path for a while, so it’s not obvious that they need another rate increase.
With the weak yen AND low wages, young people will leave. There will a brain drain. A weak yen will be very bad for Japan imo.
Since they intervened twice today、 yen to 200-250 before EOY is likely imho.
It’s the 161 area and speed of drops that concerns them. Not current strength. As I’ve been saying, the true book value of the yen is 298 per USD. No amount of printing or immigration will fix this. Unless Plaza Accord 2.0 occurs with massive debt forgiveness along with the G20 plus restoring gold as a peg to stabilize currency and debt, yen WILL go to 300 per USD.
I don’t get why people are so upset? GBP is almost 200GBPJPY. Sits at GBPJPY195.85.
The Kuwait Dinar is already sitting at 1 KWD = 507 yen.
30 years ago, yen fell past 200.
Us govt requested the Japanese government to step in and restrict the range of its trade.
Just like the solution to high oil prices is high oil prices
The solution to weak yen is weak yen
There comes a point of diminishing returns when political risk and risk of rapid yen appreciation threatens the usdyen carry trade. The fear factor will augur a rapid yen appreciation. Historically this happens with yen past 200.
The 155 level is deemed as an inflection point which bothers us too.
It’s not that the boj does not want to do more. But without fundamentals, any attempt to stem the bleed will only create a buying point after which the bleed continues.
The boj has chosen to benefit from buying us treasuries to boost its own treasuries instead of defending the yen, consistent with it’s policy that makes it the largest buyer of us treasuries all along.
Shallow understanding from me also. But something like this.
Japan like weak yen. Weak yen mean export brings more yen. More yen means developing economy. Good economy means prices are also kept low. (in Japan’s case)
Now, for me that sounds like artificial growth or a bubble. You would think that they learned the first time they messed that up.
But again, I am out of my domain of expertise, so I may be wrong. But yeah I am at least sure exporting companies are happy.
Now I don’t understand how prices can be kept low if the price of let’s say a Samsung is not decided in Japan. So you end up not being able to buy a Samsung. But maybe there is something that prevents prices of imported goods from increasing that I don’t know about. Would love for someone to explain that part to me.
But yeah, happy export, happy company, MAYBE a raise for no special reason. But not one that covers the losses on currency for sure. That would run companies into the ground.