Yen Collapses, Bailout Fails Miserably!
In the face of the strong US dollar, all market rescue actions are futile!
1
I really didn't expect it to break so quickly!
On Tuesday, I wrote that the yuan was approaching 7.3, thinking that it should struggle at this point, getting infinitely close without breaking through.
However, just one day later, on the evening of June 22, the offshore yuan broke through 7.3, depreciating to a minimum of 7.3088, setting a new low since last November.
The reason is simple: the strengthening of the US dollar has put pressure on all non-US dollar currencies. The reasons for the strengthening of the US dollar have been explained by me in previous articles, and I will briefly mention them again here:
First: The latest May non-farm employment data released by the United States is strong, triggering concerns about the resurgence of inflation.
Second: At the June Federal Reserve interest rate decision meeting, the Fed was generally hawkish, and the expectations for the number and magnitude of interest rate cuts were repeatedly disappointed, allowing the US dollar to strengthen again.
Third: The European Central Bank and the Bank of Canada have already cut interest rates by 25 basis points, and the Bank of England may also start cutting interest rates in August. The interest rate cuts of a basket of currencies against the US dollar have invisibly strengthened the trend of the US dollar;
Advertisement
Fourth: Far-right parties are making huge progress in Europe, and the future development of Europe is full of uncertainty, causing damage to the global economy, and funds are starting to withdraw from emerging market countries due to the need for risk aversion.The reason why the Chinese yuan depreciated so quickly, breaking through the psychological barrier of 7.3 on June 26th, was due to the hawkish comments made by Federal Reserve Governor Bowman on the same day. He stated that there would be no rate cuts this year, and if there were any, they would have to wait until next year.
Furthermore, Canada, the neighbor of the United States, announced that its Consumer Price Index (CPI) rose by 2.9% year-on-year, higher than the 2.7% in April and also above the expected 2.6%. This significantly reduced market expectations for a rate cut in the United States, causing the US dollar index to rise. Consequently, non-US dollar currencies depreciated faster. The Chinese yuan was already near the 7.3 mark, so it naturally broke through the psychological barrier.
What was even more unexpected was that the Japanese yen was even less resistant to depreciation than the Chinese yuan.
On June 26th, the yen exchange rate plummeted, once falling to 160.88 yen per US dollar. This marked the lowest level of the yen exchange rate since December 1986, when the bubble economy began, and it also exceeded the level at which officials intervened in the market in April.
This alarmed Japan's Deputy Finance Minister and Head of Currency Affairs, Masato Kanda, who quickly made strong statements: Officials are closely monitoring the foreign exchange market with a high sense of urgency and will take appropriate measures when necessary.
It is important to note that when the yen broke through the 160 mark in April, Japan's Chief Cabinet Secretary, Yoshihide Suga, also clearly stated that they would closely monitor the exchange rate trends and respond appropriately to excessive fluctuations.
The Japanese government even spent nearly 9 trillion yen, or 61.1 billion US dollars, in a month to save the market. In just two months, not only did verbal warnings fail to have an effect, but even the more than 60 billion US dollars were wasted.
In the face of a strong US dollar, even though the yen was verbally and physically tough, it still could not withstand the pressure of the US dollar and broke through the previous low.
The strong market intervention by the Japanese government also attracted strong dissatisfaction from the US government. The US Department of the Treasury included Japan in the "monitoring list" of foreign exchange actions. Although the United States ultimately did not designate Japan as a currency manipulator, the Japanese government will face more constraints in its intervention in the yen.Based on the fact that the current strength of the US dollar is indeed nearing its peak, coupled with the US government's intimidation of Japan, even if the Japanese government still has sufficient ammunition (Citi estimates between $200 billion and $300 billion), the rescue point for this round of yen depreciation might be at 165 yen.
Most importantly, the Japanese government's short-term market intervention may not have a significant effect. The reason for the yen's weakness is the substantial interest rate differential between the yen and other currencies in the world, especially the US dollar (the US dollar at 5.5%, while the Bank of Japan's benchmark interest rate is only slightly above zero). As long as the Japanese government does not raise interest rates, and other countries do not lower theirs, it will be difficult for the yen to truly strengthen.
Of course, in the short term, there is a glimmer of hope for the yen. This Friday, the United States will release the Personal Consumption Expenditures Price Index (PCE) for May, which is the Federal Reserve's preferred inflation indicator.
If the data shows that the increase continues to slow down, market expectations for a Federal Reserve rate cut may increase, and the US dollar could weaken. At that time, the pressure on the yen and all other non-US dollar currencies would temporarily be relieved.
It can only be temporary, as non-US dollar currencies will not have a good time until the Federal Reserve clearly announces a rate cut.
As for when the US dollar will cut interest rates, the Federal Reserve will certainly not let the market guess. Under the century-long changes, the behavior of the Federal Reserve needs to be understood with the logic of war. "High inflation + high interest rates" can internally wash debts and externally squeeze opponents; the Federal Reserve will not easily change direction unless a financial crisis occurs in the United States.
At present, the United States has not yet completed its task of harvesting the world, especially the "chives" of a certain major country. It will not allow funds to run away in advance, and will let other countries fall on the eve of the rate cut, rather than allowing them to survive the last night.
Leave a Comment