The foreign exchange market is still selling Japanese yen unilaterally. One of the reasons for this is that the world trend is leaning toward raising interest rates. Interest rate hikes such as the US dollar and the pound have been announced one after another, but on the other hand, the Japanese yen is not bought at all because the Bank of Japan is inducing a depreciation of the yen. Furthermore, the euro and the Australian dollar are also likely to raise interest rates, and there is a possibility that the Japanese yen will be sold more and more in the future. The current Japanese yen sale is not a story that happens by chance, but an inevitable phenomenon. There is a possibility that the USD / JPY will enter the era of 130 yen.
The Fed is moving to raise rates in response to rising domestic prices, and is also working to raise rates further. This is because inflation is currently progressing in the United States, and it is expected that interest rate hikes will continue as a countermeasure. In fact, Fed officials have already hinted at the possibility of additional rate hikes, and further rate hikes are likely to occur later this year. Yields on government bonds have skyrocketed from the perspective of tightening monetary policy, which is also a factor in buying the US dollar. And Russia’s invasion of Ukraine is also urging the purchase of US dollars. According to the ironclad rule that the US dollar, which is the key currency, will be bought in the event of an emergency, the US dollar buying is continuing. To prove it, the USD / JPY has been buying for over a year, and the EUR / USD has been plunging for over a year.
The Central Bank of the United Kingdom raised the policy rate by 0.25 points in February 2022. We also decided to start reducing the balance of gilts and investment-eligible corporate bonds for quantitative easing by purchasing bonds. Inflation is also occurring in the UK, and we have raised interest rates as a countermeasure. Inflation continues in the UK due to rising energy prices, increased demand due to deregulation of the new coronavirus, and a shortage of raw materials and workers. The Bank of England expects inflation to continue and is considering further rate hikes.
The European Central Bank will postpone the rate hike in 2023. This caused the market to lean towards selling the euro at a stretch, but apparently ECB executives have suggested that it could raise the euro’s rate around the summer ahead of schedule. In the case of the euro, the invasion of Ukraine is so strong that we put it off because it would be risky to raise interest rates now. But in any case, the rate hike is expected to happen, and it’s about when it will happen.
The Australian dollar could also raise rates. At its April 2022 board meeting, the Australian Reserve Bank changed its traditional cautious stance and suggested considering starting a rate hike. If prices, wages and real GDP are reasonable, it is likely that interest rates will start to rise in June. Despite the decision to keep the policy rate unchanged at 0.10%, expectations for a rate hike are very high and there are many supporters. Inflation is expected to rise further in the coming quarters due to rising oil prices and other factors, raising the possibility of rate hikes as a tightening measure.
As mentioned above, while each country is in the tide of raising interest rates, only Japan is in the opposite direction. The Bank of Japan is stubbornly maintaining its interest rate restraint policy, and the depreciation of the yen is unlikely to stop. Both the depreciation of the yen and the appreciation of the yen have their advantages and disadvantages, but sudden market fluctuations will certainly result in great damage to the economy. Looking at the history of foreign exchange, it has happened only a few times that it fluctuated by 12 yen in just one month, which is an obvious abnormal phenomenon. Finance Minister Shunichi Suzuki said, “It is not desirable to fluctuate sharply,” but there is no doubt that the yen will continue to depreciate without breaking its stance of keeping an eye on it. This unusual depreciation of the yen can be said to be a man-made disaster caused by the Bank of Japan and the Liberal Democratic Party.