A collapsed yen is not good for Japan, which has had a trade deficit for years. And it contributed to energy price shocks.
By Wolf Richter for WOLF STREET:
The yen dropped to ¥160.8 to the USD today, the weakest since 1986, despite endless jawboning by Japanese authorities – including today by vice finance minister and currency chief Masato Kanda – and some massively costly and ultimately useless market interventions.
Since June 2020, the yen has plunged by 34% against the USD. Since January 2012, when the Bank of Japan’s crazed monetary policies began under Abenomics, the yen has plunged by 53% against the US. These are massive movements for a developed-country’s currency (data via YCharts).
Jawboning and costly interventions were useless.
In April and May, Japanese authorities blew $62 billion in the foreign exchange market to prop up the yen and to prevent it from falling through the 160 level, and it had a temporary effect, and now the yen fell through that level anyway. It seems authorities have given up on holding the 160 line and may have moved the marker for interventions further north, maybe to 165.
Kanda, the currency chief, said today that he has “serious concerns” about the plunge of the yen and that they’re “closely monitoring market trends with a high sense of urgency,” Bloomberg reported. And he added, “we will take necessary actions against any excessive movements.” But apparently there were no excessive movements, and they did nothing.
Earlier this week, Kanda had said that authorities were ready to intervene 24 hours a day. But nothing happened. Finance minister Shunichi Suzuki had said that authorities were closely monitoring the currency markets and would take all possible measures if needed, and none were needed or taken, it seems.
The problem for the yen is the Bank of Japan’s reckless monetary policy, and that cannot be resolved by blowing tens of billions of dollars in ultimately useless market interventions
A collapsed yen is not good for Japan.
The time when Japan had huge trade surpluses, and a weaker yen would have been beneficial to some extent, are long gone. The country has had a trade deficit for most years since 2011, including for the past three years in a row. Japan imports all kinds of goods, including much of its energy commodities, and the weak yen makes those imported goods a lot more expensive, which has contributed substantially to the massive energy price shocks that have occurred in Japan.
The government decided to subsidize energy costs at the wholesale level to spare consumers some of the pain. Those subsidies are now expiring; some were allowed to expire, others have been extended through the rest of the year. And all that too was costly.
Japan’s global companies with revenues and profits overseas benefit on paper by being able to translate revenues and earnings from dollars and euros into lots of crushed yen, for their yen-denominated financial reports. For example, most Japanese cars that Americans can buy are manufactured in the US and Mexico. These sales generate dollar-revenues and dollar profits for the Japanese automakers that they then translate into crushed-yen-denominated financials for domestic consumption.
Companies that export from Japan also benefit. But companies that import, including components and supplies, get hit by surging costs. And Japan imports more than it exports, so on balance, it’s a negative.
At the same time, inflation — not only high energy prices in Japan but also spiking prices of essential services that companies pay for in Japan — are eating into domestic profit margins.
Sure, tourism is now booming, attracting budget-traveler crowds from around the globe. And so the Japanese people get to enjoy them, instead of traveling overseas themselves with their crushed yen.
The BOJ’s painfully too-little-too-late.
The yen started skidding lower in 2021, the year when other central banks started hiking interest rates, or were talking about hiking interest rates, from 0% or negative rates, and they began tapering QE and were preparing the markets for QT, as inflation was rearing its ugly head just about everywhere, even in Japan.
But the Bank of Japan was steadfast in 2021, 2022, and 2023 in its refusal to undo its negative interest rates and end yield-curve control and QE, and start QT, and thought somehow that inflation would just vanish and that other central banks would cut rates pronto. And so the yen got bludgeoned.
In 2024, the BOJ has begun to reverse course, but in a painfully too-little-too-late way, and the yen just keeps getting bludgeoned.
At the policy meeting in March, the BOJ hiked by a minuscule 10 basis points to 0% and effectively ended yield-curve control, and ended other aspects of its QE.
Since then, its holdings of Japanese Government Bonds (JGBs) have dipped just a tad as it purchased less in JGBs than matured. Its holdings of commercial paper and corporate bonds fell, and its holdings of equity ETFs and J-REITs had already been flat since 2022 (we discussed the BOJ’s balance sheet here).
Following its policy meeting on June 14, the yen took another hit when the BOJ failed to raise its policy rates, and announced that QT would begin immediately after its next meeting at the end of July, without providing details. BOJ governor Kazuo Ueda said at the press conference that the reduction of the BOJ’s bond holdings would be considerable. “We are proceeding carefully but it doesn’t mean that we will reduce only by a small amount,” he said. He also indicated that the BOJ might do another rate hike at the July meeting.
All this is painfully slow, as the world grapples with inflation, which this year has begun rising again in Japan, in the US, in Canada, in Mexico, in the Euro Area, in Australia…
The BOJ had gotten away with its crazed monetary policies for so long – until it suddenly didn’t. Which must have come as a shock. It is now lining up more significant steps (rate hikes and considerable amounts of QT) to move away from these crazed monetary policies. The central banks of Mexico and Brazil knew how to protect their currency in 2021 and 2022 amid inflation and the Fed’s expected reaction to inflation: They started with massive rate hikes in 2021, pushing their policy rates into the double digits by 2022, and their currencies did very well against the USD, even as the yen plunged.
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Ok so what does this mean, imminent BOJ FX intervention?
What if they just let it keep going..180, 190, 200..
The BOJ needs to hike rates and start a massive QT program. That’s what would stop the yen’s drop. It needs to be shock-and-awe over and over again for a while. Everyone knows this, everyone at the Fed, everyone everywhere, even the people at the BOJ. But this BOJ is probably not up to it. They’ll do some modest rate hikes and maybe quite a bit of QT (Japan did QT before and ran off 30%+ of its balance sheet in about two years, long before anyone even had a name for QT), maybe hoping that a concentration on QT would solve the yen’s problem. The July meeting is going to be key. If they wimp out again, it’s going to be bad for the yen.
Trouble, right here in River City. The Fed is caught between a rock and a hard place: The dollar has risen against almost all major currencies. Not historically high, but high. So the temptation for the Fed to lower rates is strong – to reduce the high dollar valuation. But they’re trying to tamp down inflation. Nowhere to turn.
What I find to be strange is that Treasury yields, for bills, notes and bonds, are higher than almost every other Western nation. I would think that for yields to be higher, the currency would be lower in value. Rates for countries like Argentina are high because of the weakness of the currency and likelihood of default. Strongest currency paying highest yields? No comprendo.
HowNow brown cow
A bad move by “Kanda” the currency caretaker of Japan could mean higher prices and harder times for the Japanese people.
Kanda says, he has his marker and is watching for movement…ready for action.
The Word on “wolf street” is confidence level for Kanda is low.
Obviously, under world wide QE, Japan’s forte. Eventually, sustainability asserts itself. It’s not as if Japanese script hasn’t been overvalued for a long time.
It is more a question as to why Japan was motivated to suspend their overvalued currency until finally, the relative value, adjusted violently.
It’s a philosophical debriefing that is required to answer the diabolical question. Why ?
In order to sell all the US bills, notes & treasuries the US produces to finance its deficit, it has to have high rates to attract buyers. You have to buy treasuries with dollars, so foreign buyers need dollars which causes their relative value to go up.
Well, Kent, if foreign investors need dollars to buy Treasuries, then it’ll take more of their currency to buy the more expensive dollars to buy the higher yielding Treasuries.
There was an old woman who swallowed a fly. I don’t know why she swallowed the fly, perhaps she’ll die.
“Strongest currency paying highest yields?”
I’d say that 75% of the time, varying interest rates across countries determine the “demand for”/”value of” of a given currency.
So,
1) Comparatively high interest rates in US = strong US dollar
2) Comparatively low interest rates in Japan = weak Yen.
It really is as idiotically simple as that in the FX mkts, the majority of the time.
Massive, transnational investors want the highest yields on their savings, period.
So the money moves, quickly, to follow interest rates.
Actual, real-asset trade-flow currency-demand (ie, “Want a car built in Japan…somebody in the supply chain gotta get some Yen…ultimately”) moves much slower than financial/fx mkt driven demand.
In the long term, though, real trade flow driven demand tends to win out because financialized, interest-rate driven demand leads to reality-ignoring imbalances (ie, most efficient/productive countries win ultimately because financial mkts can only paper over reality temporarily and macro effects will have their revenge in the end).
Correct.
Wolf,
Aren’t you ignoring the fact that the BoJ has to operate under the accumulated cancer of Japan’s massive fiscal debt (maybe 270% of Japanese GDP by now).
That’s what decades of pathological fiscal deficits get you (let’s call it the American Disease, although Japan is much worse off in share-of-GDP terms…so far…)
**So, if the BoJ hikes rates to strengthen the Yen, the Japanese G’s debt servicing costs explode** and a fiscal death spiral might very well start.
(It is only at “magic zero” interest rates that accumulated fiscal debt is/seems “meaningless” – hat tip MMT scumbags. At honest rates, accumulated fiscal debt matters a ton to annual government budgets)
Governments like to fiscally ponce around for years/decades like they are endowed with superpowers that exempt them from underlying economic realities.
But they aren’t exempt – they can only perpetuate their fiscal deceits for a finite period, then underlying economic realities reintroduce themselves (long term comparative productive efficiencies across countries) and those governments, their currencies, and their people are squashed, all at once, because of the accumulated economic pressures so long denied by the fiscal lies.
Nah. US Deficits have been far worse than Japanese deficits for years, proportionately speaking. The US has blown Japanese fiscal profligacy out of the water.
The 1% 10-year JGB yield tells you that the BOJ can do a LOT of QT. When that yield gets to 5% or 6%, it might have to briefly pause. But the yield might not get there, as there is huge demand in Japan to put savings into something that pays noticeable interest in yen. They haven’t had anything like that for decades. They’ve suffered through 0% interest income for decades. They’ve had to go into foreign-currency securities to get that, which is risky. So if yields rise to 3% or 4%, there will be a tsunami of savings going from other (often foreign) instruments into JGBs. And this demand will keep yields down. Same thing here in the US, which is why the 10-year Treasury yield is only 4.2%.
can the japanese carry trade be unwound , and the central banks foreign reserves be dumped to save the yen? or would they also not be sufficient. perhaps the aforementioned two plus getting rates upto 6% would do something. I wonder what the m2m losses on banks sheets will look like tho. and the central bank’s.
Wolf. I bet the BOJ would have to do something drastic and bought a bunch of yen and planned a trip in OCT. Unfortunately at 150. But I still think it will go back to 100 if they expect the country to survive.
It would be a shame if Japan was gutted like a fish by the global financialists. The culture is a world heritage. But Korea was gutted by the Japanese and recovered – only to be seduced by the west.
Where will it all end?
I fully agree but to add some detail BOJ must start selling T-Bonds to pay JGB yield.
I don’t agree that cash intervention is waste of money BOJ will refill buying later at lower levels. Actually before April action BOJ had around 190 $ bln plus they can get unlimited $$$ from FED. I saw that Nomura in 2015 in 3 months got $ 3.6 Trillions from FED. Money is not a problem for them. The biggest problem that everything in Japan is extremely slow it is their national tradition so far.
What I want to to know is who are players in the currency markets pushing the yens value down?
And who is buying Japanese bonds? I thought only BOJ and Japanese banks do that.
Is it interesting that BTC and Gold were weak on this news about Yen or is it just noise ?
Do you buy the idea that Yen is geared into the Petro-Dollar clockwork in some way ?
Can anything save the Yen as long as US rates remain “elevated”
I counter that the only loud mouth supporting the delusion that the US interest rates are too high is the housing ownership lobby.
The rest of us think that the price is too high and should decline by 50 pct or so.
See yesterday’s “Yellen-the-Evil-Hobbit’s” insanely laughable $100 million program (over 3 years!!) to address the US’ trillion dollar housing affordability crisis.
That teeny, teeny, teeny, tiny amount gives DC’s whole game away.
After spending decades strangling USD interest rates to artificially inflate US home values (thereby creating the mother of all phony-baloney wealth effects, even as US intl competitiveness was rotting away) DC doesn’t have a single intention of really unraveling that phonied-up wealth effect (which would require a fall in home prices…otherwise known as increased home affordability).
DC is *all* in on relying of the 60%’s home value paper gains to defeat the 40%’s all-too-real home affordability crisis…politically.
The US housing market is likely $20 trillion plus at current overvaluation.
Bilbo Yellen’s $33 million in annual “affordability funds” isn’t even ant piss in comparison.
I don’t know the details but Japan is in trouble. Weak currency, huge government deficits, aging population, importing energy instead of using nuclear or other, a massive carry trade that will be complex to unwind, and few natural resources. I am expecting a financial crisis in Japan in the next few years. Does anyone have any insight beyond my speculative high-level perspective?
Financial crisis in the next few years?? John Mauldin has been saying that about the Japanese economy for about 35 years now. He characterized it as “a fly looking for a windshield.”
There is no such thing as the ‘petro-dollar’ and oil accounts for less than 5% of global US dollar transactions.
I don’t think we should be overly melodramatic trying to interpret what a nation state did as it reflects on the national character of a formerly hated enemy transitioned into a treasured friend.
Let’s hear it for the human condition: Hip, hip, hooray!
Longterm resident of Japan here.
I believe the BOJ will throw us taxpayers under the bus
in order to save exporters.
I have no idea what is wrong in Japan…….I do know that their demographics are horrible. In a few years, virtually nobody is going to be around to support the old folks. Sort of like Italy.
So they need to goose the economy constantly to get it going. Which also contributes to a weak yen.
What is surprising is that their balance of trade with such a weak yen is not positive…….but for a country with virtually no natural resources and no agricultural land….they sure have done well…….very hard working.
I was in Hawaii a few months ago and they practically occupied every room in my hotel.
Maybe they need to open up the country to immigration….but I’am not aware whether their culture could accept the new folks.
A country can stay rich and take care of its elderly without “demographic” growth.
Does it make sense to you, on the face of it, that for every elderly person you must have two younger people taking care of them ?
How do schools and hospitals manage without two nurses and two teachers per person ?!?!
How did our ancestors do it ?!?!
Maybe you are getting fleeced by having big daddy government be the middle man handling all of the retirement cash for your own peoples elderly population ?!?
Again, ridiculous on the face of it.
As you correctly gave the Japanese credit for, they live on an island with no natural resources and have achieved every form of success. That, obviously, is infinitely more difficult to do than maintain prosperity with a declining population.
Quit allowing yourselves to be led by the nose, people.
Sounds like you should quit.
Who are you calling “people” and commanding with such a high hand, such a tone?
I think an idea here is, if you say something that makes sense, it carries its weight. Hand-waving in people’s faces, not so much.
Mrs yakamoto is sympathetic to your ideas, whatever they may be.
I think what your saying is, if the Japanese can eat their food with a stick, they should also be able to eat the dog with a stick.
Open up to immigration? Don’t they already have huge population density?
Wolf didn’t provide the inflation rates in Japan, but I doubt the inflation problems are not as dramatic as the exchange rate plunge. Some industries and groups are impacted more than others, as the article points out. The monetary authority stepped in to create big winners and big losers, just like in the US. In aggregate, it all looks sorta rosy.
In short the problems are:
1)Lots of jobs that used to be full time permanent (“Seishain/正社員) are now hakken/派遣 (dispatch / temp) or even worse, gyomu itaku （業務委託）(sub contractor), which means no job security, no benefits and no status (to marry a woman).
In addition to that is black-Kigyou (basically forcing people to work extra off the books), and a labor court system that basically sides with the corps every time leaving workers to abuse from all directions with no real recourse possible.
It is also openly known that employers are in active collusion to keep pay low, (don’t ask me how I know) and for the most part, there is no real wage competition / job hopping to better positions among workers taking place.
The result is workers who have low pay, low job security, no benefits and crazy amount of hours, with no real leverage to fight back except “lie flat”. Temp workers in insecure jobs cannot get home loans, and so cannot really start life / start families.
The ‘labor shortage’ is nonsense. As usual, whenever anyone says ‘labor shortage’, it is really a ‘pay shortage’ (and also benefits and security in this case).
I could go on, but in a nutshell, that essentially is whats wrong..
[I lived in Japan for 20 years working in fintech industry, speak read and write Japanese at a business level and still go there very frequently for work]
This sounds like USA.
On paper, unemployment is historically very low.
I have few friends, looking for a Job for 1 Plus year. Some Hi Tech Engineers, Some College Teachers.
Teacher can find contract position with no benefits but he is looking for permanent position, pay does not matter. He just can go to restaurants and work as waiter yet.
Same for my Hi Tech engineers friend. They were earning 200K plus, they are willing to take 30-40% pay cut but no luck so far.
@Jon,
What field are your Hi Tech friends in?
How old are they?
How long were they at their last job?
I’m in what would be considered Hi Tech. The thing about Hi Tech is that it is very specialized. So, lets say you have been working at a company for 15 years, and the development tools that you used never changed much. Then suddenly you need to find another job, and all of the companies want people with newer skills that what you have experience with.
Just my $0.02
Also, unless things have changed in last few years, only half the population, males, are in the managerial work force.
Sea Creature,
I have the same thought every time I read about the so-called “nursing shortage” in the US. There is no nursing shortage. We have a lot of people with nursing credentials who are not working as nurses. The shortage is of people willing to do an often dirty and difficult job for the wages being offered.
Yes, that is exactly right. It is the same issue in Japan in a lot of areas (construction, factory workers, nursing as well..etc), and in the USA in some areas as well (i.e. H-1B Visa IT computer workers from India).
It is never a ‘labor shortage’ issue, but rather that the foreign import labor is so much cheaper than the domestic labor available, so that is what companies want to hire. They set the rates very low, scream ‘shortage’ and the govt lets the firms bring in import labor that is cheaper from developing countries (India, Thailand, Indonesia, Philippines..etc).
If the labor shortage were real, you’d see rates shooting up, workers from other developed countries coming in..etc. This was true for a time in the 80s and 90s in Japan (particularly in IT and finance), but it is not true anymore. These days it is all about getting cheaper labor than Japanese people and lowering costs. There is no labor shortage at all.
Well, Hawaii is feeling the brunt of the weak yen…..
“All of our surveys and research still indicate that interest in traveling to Hawaii remains strong, but cost is a hindrance,” he adds. Aside from the weak yen, Takahata also said U.S. inflation and high air fuel surcharges have been contributing to the slow recovery.
In 2019, Hawaii saw more than 1.5 million visitors from Japan, but in 2021, it dropped to 24,232. Last year, Japanese arrivals rose to 572,979. The first quarter of 2024 shows it slightly increasing, but it’s at about 60% of the pre-pandemic level.
The decline has impacted Hawaii businesses, causing some local shops to close and others to adapt to the change.”
…and going to drop back down again this year.
Hawaii has become really expensive for residents and tourists with USD, let alone falling foreign currencies.
More than half of native Hawaiians now live on the mainland having been priced out. Las Vegas is called “The Eighth Island”.
Curious as to any thoughts you may have in relation to the Japanese bubble circa 1986-91. Here in Hawaii we saw huge land purchases by Japanese and I know some have attributed to Yakuza influence. Those Japanese that managed to hold on over the decades have seen massive profits simply because of yen devaluation.
Can we turn Japanese?
Asia’s strategic importance for the US means that the well being of Japan as a critical ally may weigh on US economic policy. For instance, the US may have further incentive to lower the USD to give the Yen some breathing room. More impetus for US rate cuts maybe, while simultaneously trying to keep a lid on inflation? Tough balancing act.
What are your thoughts, Wolf?
This is not the Fed’s job. This is the BOJ’s job. So I’ll just repeat it here:
The BOJ needs to hike rates and start a massive QT program. That’s what would stop the yen’s drop. It needs to be shock-and-awe over and over again for a while. Everyone knows this, everyone at the Fed, everyone everywhere, even the people at the BOJ. But this BOJ is probably not up to it. They’ll do some modest rate hikes and maybe quite a bit of QT (Japan did QT before and ran off 30%+ of its balance sheet in about two years, long before anyone even had a name for QT), maybe hoping that a concentration on QT would solve the yen’s problem. The July meeting is going to be key. If they wimp out again, it’s going to be bad for the yen.
It will be dollar yen currency swaps, which will be inflationary to the USA but how much I am unsure.
LOL. The last thing Japan needs is more dollars. It’s sitting on $1.1 trillion in Treasuries, plus it’s stashing some dollar-cash at the Fed at the foreign official reverse repo facility, plus it has other dollar-denominated instruments. Japan has got dollars coming out of its ears.
Japan may be fine with a currency deflated on the world market but stable in the domestic market. More contracts for the vaunted Japanese manufacturing prowess.
“Japan may be fine with a currency deflated on the world market..”
Sure, “may be fine” in the sense that it’s not going to collapse or whatever. But all imports, including energy products, are a LOT more expensive. Japanese consumers and businesses are dealing with an energy price shock, and the government had to subsidize energy at the whole sale level to soften it. Japan has had trade deficits for years, and the weak yen has made that worse because those imports now cost a lot more in yen. As discussed in the article, just for you.
Japanese gas prices are lower than California, Canada or Australia, about US$4.25/gal. With the tiny cars and short distances they drive, households can’t be spending much on car fuel.
(Yes, I know there are other aspects to energy costs, just highlighting one of them)
Japan is a weird country. Generations of survival against natural disasters shaped their culture to some extent that all can be overcome and that their society is the one to top all others. For them to open their country to immigration like the rest of the developed countries will require something drastic happening politically and culturally.
Japan doesn’t have any 3rd world countries on a border or within quick boating distance.
We get avocados, power tools and cars from across the seas. The problem with importing people is not logistics. But sorting among them for a place in labor markets (while deciding who carries those costs) could be tricky. Modern bureaucracies have tools. On the USA border, they have been sorting through ad hoc, unregulated means. California/USA used to have “guest worker” programs for that; farm workers were bused into our area (avocados) when I was a kid.
I was looking at traveling to Japan in a few months, I had read about the weak yen being a boon to travelers but when I actually went to price it out everything was surprisingly expensive. It feels like they have a “normal” price and an “English-speaking tourist price”. Ended up booking a trip to NZ instead.
Serious question for the finance crowd here– when the dollar gets stronger does it make the P/E ratio go down for Japanese stocks? It’s intuitive that real estate is cheaper when you swap your dollars for local currency but I was curious if stocks work the same way. If so, there could be some decent opportunities in Japanese stocks if this currency devaluation really gets rolling…
Conversely, are euro-based investors paying even higher P/E ratios for US stocks than us Americans are? Would love to know!
Yen , Euro , Peso , USD are units of measurement. P/E ratio should be the same regardless what currency you use for your calculation. If one is looking for an investment or arbitrage opportunity , then exporters should benefit from a weaker Yen. I was long USDU in order to take an advantage of a weaker Yen and stronger USD – a low risk retail trade available for every investor.
I don’t know what stocks are available in the Japanese hotel sector or other tourism-related areas, or if they are affordably priced right now, but foreign tourism is going great guns and a falling yen gives them room to boost prices.
Japanese hotels seemed absurdly inexpensive when I was there last year, like US$50 for a nice 3-star in Dotonbori, Osaka.
P/E is calculated in a single currency so it would not change based on the currency used to purchase shares. The price in USD might be lower due to the lower value of the yen, but so would the earnings. At least, that’s how it seems to me. I am open to being corrected.
Japanese stocks were manipulated upwards by the Japanese government buying stocks. When this happens avoid stocks like the plague. The government has no one to sell them to.
Maybe Japanese investors are buying foreign (US?) stocks instead of domestic ones because the government has jimmied their intrinsic worth. I don’t know if that’s a thing there…
A decent opportunity can only be verified decades later. On the other hand, too some, taking money upfront, from the victims is fine.
Hara- Kiri is a horrible way to go. I would suggest the volcano jump.
After the age of 85, to please the “yen” God a sacrifice could be in order.
Japan has a high life expectancy. A big party for Mrs yakamoto, hugs and kisses and then the final wave goodbye.
US Treasury just put Japan on its currency manipulation watch list. If the Bank of Japan tries to sell Treasuries to prop up the yen, certainly they will face sanctions, more withering if they don’t Kowtow to Yellen.
There won’t be any sanctions. The worst-case scenario is that “Japan” will show up on a list that will be given to the IMF to do something with.
Unless I am nuts, the currency watch list is for countries manipulating their currency LOWER.
BTW: this was the original purpose of the IMF, to stop the above.
Japan has had deflaton off and since the 1990s. This is probably what the central bank is scared of. There is a culture of consumers not buying anything, living as frugal as possible. There is also a culture of young people dropping out of the workforce, after they saw their fathers work themselves to death over loyalty to a company.
The concept that Japan is experiencing deflation doesn’t jibe with the assertion the Japan has no natural resources and has too import sensitive commodities from a world awash with inflation.
Do the same thing over and over again and expect a different result never does produce a different result. Endless zero interest rate policy destroyed Japan and their currency. I hope China gets a clue as they’re following the same path as Japan.
Seems like only yesterday, we were chatting about the US Treasury experiencing a decline in foreign buyers…
Think about this: “ Countries use devaluation to boost exports due to the lowered value in currency perceived by countries that import the goods, reduce trade deficits, and lower the cost of interest payments on government debt”
Japan is doing great job with exports and it can reduce its interest payments on massive, monstrous debt to GDP — and meanwhile, the US is spending a $Trillion per year on interest costs and watching various countries implement currency wars — i.e, china devaluing, etc ….
Then of course, the issue of tariffs folds in here, which is inflationary and excuse me but I have to go vomit.
The cost of delaying a global recession is getting expensive!
“Seems like only yesterday, we were chatting about the US Treasury experiencing a decline in foreign buyers…”
BS. RTGDFA — second chart:
https://wolfstreet.com/2024/06/19/the-foreign-holders-of-the-ballooning-us-debt/
Corresponds to the earthquake and tsunami. Shutting down all their nuke reactors was a huge mistake.
They didn’t
They did for a few years, most have restarted or are in various stages towards doing so now.
Sea Creature and Wolf,
Why has the political process not forced shock and awe on the clowns running the country yet?
I would have expected big gains by populist parties in their parliament, and tons of yelling and kicking and screaming which would start forcing the BOJ to get the currency situation stabilized (and handle a bunch of the other problems discussed previously).
It just seems like the Japanese public has given up, and decided to lie flat, stop having kids and go into a psychological depression rather than stage protests and fight these idiotic monetary policies which appear to be taking the country down.
What do I not understand about the Japanese political system/society that causes the public to just keep taking this crap year after year?
People in Japan have been conditioned to be super compliant traditionally and culturally.
Japan has one of the most homogeneous society .
Hence immigration may not work to solve this demographics problem
Japanese govt want people to be in coma forever
Mainly because the way the voting districts are set up, each vote in the countryside / rural areas has a lot more weight than each vote in cities (think two senators for each US state, and how that favors rural states with low populations… it works like that in Japan too).
Rural areas in Japan are full of old people, set in their ways, and vote LDP (Liberal Democratic Party) which carried Japan through its economic miracle, almost to a level of making Japan a one party rule state (with some exceptions) over the decades.
Old traditions die hard, and the younger and more educated people in the cities have a hard time changing that with their (relatively) weaker votes.
“ Analysts said while the risk of intervention has increased, Japanese authorities could be holding out for Friday’s release of the U.S. personal consumption expenditures (PCE) price index before entering the market.
“Both the level of the exchange rate and pace of the depreciation are important for the Ministry of Finance (MoF) to consider intervening in FX markets,” said Boris Kovacevic, global macro strategist at Convera.”
Japan selling US Treasuries, in theory means yields probably higher — lots of currency games unfolding with post pandemic debt
Would the US let Japan buy oil in yen? Would solve a lot of problems for them.
Or they could pay in wasabi, that stuff has real value.
Played the Godzilla pinball game at a diner that was a page out of the 80s the other night. 3 balls for $1. My longest play couldn’t have been much more that a minute, but somehow I scored over 10 million points. So depreciation isn’t just limited to their currency, lol.
The US might, but the Saudi’s want dollars, not Yen.
The movements are not excessive. That would imply a back and forth. It’s a steady decline.
But it’s OK. Most of my income is in USD, and when I convert a little to JPY to living expenses, I get a lot of monopoly money.
> high sense of urgency
These guys only ever get a high sense of urgency, when it comes to making sure they get the best seat at Ginza steakhouses and hostess bars.
As it should be.
The only reason why the Yen is at 160+ and not 190 is because of the threat of intervention. The BoJ can sell some dollar assets to buy Yen, like they’ve been doing.
My sense on this, they would like to defer on that until July 1st, because dollar sales are reported monthly.
But in the end, it all comes down to whether the Yen can survive in a negative “real” interest rate (interest rate – inflation rate) environment. If they can’t, they have to print to buy up the debt that investors avoid in order to not take a loss.
Can the Japanese economy survive without negative real interest rates? I think I see Weirmar Republic economics here. All of this debt that the central bank owes the central bank could be cancelled tomorrow, and the facade that this was ever debt in the first place would disappear.
Since there was no actual borrowing, there was no debt. Instead, the printing was done to alter price discovery in debt markets, and the amount of the altered price discovery which may or may not match the “debt” amounts is what matters.
I see Ponzi, where new money is printed to roll over existing debt and incur new debt. They may be on hiatus for a few weeks, but I need to see hiatus for 6-9 months.
Maybe I’ll see hiatus for 6-9 months, and I’ll learn something, courtesy BoJ. But, I don’t think they know what to do, particularly with negative “real” interest rates. If they can’t survive, they print, and a requirement to print endlessly looks like Ponzi.
Something to mull over: if I print a million dollars and hand it to a poor man, he’ll spend it and the price of food and other commodities will go up to absorb those dollars. If I hand it to a rich man, he’ll spend it on stocks, bonds and real estate, causing the price of those things to go up. Consider this too: after the poor man has spent his million, where does the money go? To the owners of the companies that produce the food and other commodities. Moral of the story? Buy stocks, bonds and real estate.
DownFed: “All of this debt that the central bank owes the central bank could be cancelled tomorrow, and the facade that this was ever debt in the first place would disappear.”
Kabuki theater. Has a long history.
Just deserts I would say, as the creators of ZIRP that subsequently inflicted protracted punishment on world-wide normal interest rate users for a long time, some form of retribution is overdue.
KANDA:
– Seriously concerned about recent RAPID weakness in YEN
– Will take necessary action in EXCESSIVE moves
– Will respond to RAPID, DISORDERLY moves
Translation:
– As far as there are no RAPID, EXCESSIVE, DIDISORDERLY moves, there will be no interventions
– YEN can fall to 200 as far as it is SLOW ORDERLY NON-VOLATILE move, BOJ/GOV do not aim for any specific level like 160 or 165, they watch rate-of-change!
– 200 is still not all time low for JPY, YEN can easily fall much lower
QT will not help to support YEN, QT will only help with inflation. In order to support YEN, BOJ MUST RAISE INTEREST RATES, or G7 needs to drop their rates. Otherwise YEN will be falling further.
It’s simple, BOJ needs to close arbitrage in interest rates, does not matter what they GOV/BOJ talks. Although, in the event of China devaluation of their currency, the YEN will get some boost.
Interesting. Well, since they do have $1.1T in US paper they could possibly say “we sell dollars and buy Yen to keep it around 150”. I don’t think anyone will have a problem with the Yen at 150 over the medium term. Japan needs to buy oil too.
It’s not a terrible idea to wind down the Japanese pile of US treasuries in an orderly fashion. May not need to try to peg the Yen to the Dollar at 150, but a steady selling of US treasuries to buy yen and then retire it QT style could happen anyway.
It might well be good for the US too. Fewer treasuries held by Japan at low yields, more sold to yield-sensitive US buyers, and so yields go up into a more historically normal range.
Excellent. Thank you.
FYI, BS from mid-May:
“ The Bank of America said that the reduction in demand for US bonds may slightly push up interest rates and tighten the reference interest rate associated with overnight repurchase agreements, that is, the interest spread of the Guaranteed Overnight Financing Rate (SOFR). Strategists say that the short end of the US Treasury yield curve is most likely to be affected because most US bonds held by Japan’s Ministry of Finance are probably short-term US bonds, or treasury notes.”
Tough Call.
JPN seem to be having problems dealing with the U$D as their Anchor as their major Trade Partner CHN have been dumping U$Ts – especially the Long Bonds to where the Bulk of their U$T Holdings were under 2 Years of Maturity a few years ago.
Add to that, they’re Outsourcing a good amount of what was covered by Domestic SMEs.
On the Other Hand – there are Politicians (I DM’d one a few years ago) who have been advocating the JP¥ to go down to 200JP¥ to the U$Dollar to boost Exports.
Alot has happened over the Decades – I grew up on the PetroU$Dollar and the JP¥ exchanging around 300+JP¥ to the U$D, saw it rise to the 120s.
Now, we’re about to see OPEC+ being sold in currencies other than the U$D – good odds for JPN to be able to purchase Hydrocarbons from OPEC+(Including Russia here) directly in JP¥; and buying CN¥ (or using CN¥ Holdings from the Trade) for CHNese Energy Exchanges.
As the SCO and RCEP-Asia become more influenced by CHN, their CN¥ and PetroCN¥-Gold Exchange Schemes, JPN are going to have to adapt their Financial+Trade Strategies that will no longer be centered around those of the United States, the Federal Reserve and their U$D, and of the US Treasury.
Rough Seas ahead; but I’m expecting JPN to outgrow their situation with their increasing Trade with the growing SCO/RCEP-Asia Economies.
I’ll get a better picture once I finally relocate back there (Homeland to my Mother and Me) later this Year.
In Sapporo at the moment. I don’t get the feeling that the average Japanese consumer is aware of the inflationary threat. My wife says hard to get orange juice due to import costs. My mother-in-law, coffee shop owner out money in dollars for the yield. Also the Japanese government is subsidising energy so keeping inflation down that way (as the UK, France, US has done).
However I think ultimately they have been wrongfooted by the high rates of the Fed persisting so long and are still fingers crossed about rates coming down to ease yen pressures for them
From S&P many weeks ago:
“ The gradual rate hike in Japan would keep US Treasurys attractive enough for Japanese banks to consider, economists said, as the Fed could start quarter-point rate cuts from the current 5.25% to 5.50% range later this year. A narrower gap between US and Japanese policy rates would also reduce the cost of hedging foreign-exchange risk for Japanese investors.”
Did you see Japan’s crappy interest rates on their bonds, bank deposits etc. You have to go 30 years+ to get close to 2.4%. Do not tell me inflation has not gone up alot in Japan like other developed countries.
The 5 year Japan bond should be minimum 3% to start. This is still low but it will not let the yen get so creamed on world exchange markets.
How is this working with JPY and BoJ bonds? Usually when the currency drops the bonds are rising and the yields are falling.
Why is this not a case here?