Recently, the yen has continued to depreciate. On April 30, on the international foreign exchange market, the exchange rate of the yen against the dollar fell below 160 yen to the dollar, a 34-year low and once returned to the 1990 level. Earlier, the official website of the Bank of Japan issued the interest rate resolution of the April interest rate meeting and decided to keep the unsecured overnight lending rate at 0% to 0%.Cyberpunk2077crashWithin the .1% range.
What caused the yen to plummet against the dollar? Does it mean that a new round of financial crisis is coming? The yen continues to depreciate, Buffett has become the biggest beneficiary, how did he get a considerable return on investment?
What is the reason for the depreciation of the Japanese yen
@ Shepherd's DayCyberpunk2077crashHow much impact will the collapse of the yen against the US dollar have on the Japanese economy? Why does the yen continue to depreciate?
Guo Shiliang: the yen continues to depreciate, while the Bank of Japan "does nothing", but the market's expected interest rate hike has once again failed. Perhaps, from the BoJ's point of view, inflation, which has not been easily stimulated, can prompt the Japanese economy to enter a state of modest recovery, and if you choose to raise interest rates at this time, you may be in vain of previous efforts. When the Bank of Japan will raise interest rates remains a mystery.
A few years ago, the Bank of Japan adopted a policy of negative interest rates, and now negative interest rates are beginning to withdraw from the historical stage. even so, the Bank of Japan has only raised interest rates to a range of 0.1%, which has a limited impact on the market. From the perspective of market funds, more attention is paid to the expectation of raising interest rates. If the Bank of Japan starts a new cycle of raising interest rates, it will also have a greater impact on the Japanese economy and the Japanese stock market.
Why does Japan's exchange rate continue to depreciate? Behind the continued depreciation of the Japanese exchange rate, the widening interest rate gap between Japan and the United States has become the main reason. It was thought that the Federal Reserve would start to cut interest rates in the middle of this year, and the market expected two or three interest rate cuts this year. However, with US inflation rising again, market expectations of interest rate cuts this year have cooled, and it is even possible not to start interest rate cuts this year, leaving the suspense of interest rate cuts until next year. As a result, with the widening spread between Japan and the United States, Japan's exchange rate and stock market have become channels for global capital arbitrage.
So far, the yield on Japanese 10-year bonds is 0.93%, while that on u.s. 10-year bonds is 4.66%. The spread between the two is still at a large level. The failure of the Fed interest rate cut will lead to the continuous expansion of the interest rate gap between Japan and the United States, and the larger interest rate spread space will also produce a larger arbitrage demand.
Under the influence of the expected cooling of the Fed interest rate cut, the dollar index strengthened again and returned to its position above 106. Under the influence of a strong dollar, global assets have been affected to some extent. Among them, the exchange rate market has become the key object of the global capital game, the Japanese yen is not a single target, and the exchange rate of Southeast Asian markets also fluctuates to varying degrees.
The continued depreciation of the Japanese yen has had a lot of impact on the daily life of Japanese local residents. Among them, the most direct impact is the rise in price costs and a substantial increase in the cost of living. Japanese young people have to return to the job market, otherwise it will not be easy to feed themselves. Under the influence of the continued depreciation of the Japanese exchange rate, the pressure on Japanese households to spend continues to increase, and their enthusiasm for consumption has also declined.
@ Tig~: is the depreciation of the yen affected by the increase in interest rates by the US dollar?
Guo Shiliang: the depreciation of the yen is affected by many reasons. The expectation of the Federal Reserve to cut interest rates has failed, and the strong dollar has risen. When a whale falls, everything is born, but now that this whale is up, other assets are obviously under pressure. Let's take a look at the fact that Japanese government debt accounts for more than 200% of GDP, while in the United States, the ratio is 122%. The Bank of Japan has been slow to raise interest rates or does not want existing achievements to be swallowed up.
@ Mountain Rain.: why does the Federal Reserve keep raising interest rates to try to curb inflation in the United States, but to no avail?
Guo Shiliang: since March 2022, the Federal Reserve has been raising interest rates unilaterally. The benchmark federal interest rate has soared from 0-0.25% to more than 5%. The benchmark interest rate is too high and not sustainable. The Fed's interest rate hike once pushed inflation down, but high food, rent and oil prices have also contributed to high inflation.
If the Fed takes more aggressive measures to raise interest rates, it will also be a double-edged sword. Raising interest rates too quickly will also increase the pressure on the US government to pay interest rates every year, and raising interest rates too quickly may not have a better effect on curbing inflation. There are still some difficulties in the decline in the rate of inflation in the United States. on the one hand, the per capita salary in the United States is relatively high, hourly wages have continued to rise in the past two years, and high pay has also raised the price level to a certain extent. On the other hand, due to the high oil prices, rental prices and food prices, it is also very difficult for the US inflation rate to fall substantially. Even if the Federal Reserve cuts interest rates in the future, it may cut interest rates in stages, and it is unlikely to enter a new cycle of interest rate cuts again.
Why is Buffett a big winner?
@ thepaper.cn VNnqMb: did Buffett borrow a lot of yen?
Guo Shiliang: as early as four years ago, Buffett's Berkshire Hathaway issued yen bonds using US dollar assets as collateral. So far, Berkshire Hathaway has become one of the largest overseas issuers of yen bonds.
In the era of negative interest rates in Japan, Buffett's Berkshire Hathaway issued yen bonds for the first time. Years later, Berkshire Hathaway almost accurately judged this round of yen depreciation. And from the spread income, exchange rate income and dividend income and other ways to profit, the stock god's layout many years ago also began to gradually close the net.
Buffett laid out ahead of time before everyone was aware of the investment opportunities in the Japanese stock market and the depreciation of the yen. On the one hand, it earns arbitrage income from the widening spread between Japan and the United States, and on the other hand, it also earns arbitrage gains from the continued depreciation of the yen. At the same time, Berkshire Hathaway has also reaped considerable dividend income and share price gains by laying out Japan's major utility companies. This time the layout of the stock god is really exquisite.
@ Elizabeth's duck: from an investment point of view, can ordinary people take advantage of the opportunity to buy foreign exchange to make a profit?
Guo Shiliang: foreign exchange is more complicated than stock investment and futures investment, and the continued decline in the exchange rate of the yen is beneficial to friends who travel and study in Japan, but foreign exchange investment needs to be cautious, and price volatility and speculative risks are still high.
