Korean Media: The Japanese Government Is "Selling Off Japan"

Korean media outlet JoongAng Ilbo (Japanese Edition) published an article on June 2: Over the past month, the Japanese government has spent 1.17349 trillion yen by selling dollars in currency intervention efforts. However, the yen has now depreciated again to around 160 yen per dollar. At this moment, Japanese government bond yields have surged dramatically, triggering concerns about a simultaneous sell-off of both the yen and government bonds—the so-called "selling off Japan."

According to Investing.com, the yen has weakened to 159.5 yen per U.S. dollar, approaching Japan’s critical 160-yen defense line. In late April, during the trading session on April 30, the exchange rate reached 160.34 yen. Large-scale market interventions by Japanese foreign exchange authorities caused the rate to rebound to 155 yen. Between April 28 and May 27, Japan’s Ministry of Finance spent $73.7 billion to intervene in the currency markets—exceeding 17% of South Korea’s total foreign exchange reserves of approximately $420 billion. Despite these massive interventions, the yen has once again declined, with analysts stating that the effectiveness of government actions has largely dissipated within one month.

The Japanese government's "aggressive fiscal policy" is further pressuring the yen. Prime Minister Sanae Takaichi recently pushed forward a supplementary budget of around 3 trillion yen to counter rising prices and energy costs, primarily targeting subsidies for fuel expenses and electricity bills.

Kim Sang-hyeon, a research analyst at iM Securities, said: "While Asian countries are especially vulnerable to high oil prices, the Japanese government's active fiscal spending intensifies concerns about continued issuance of government bonds, further exacerbating downward pressure on the yen."

Reuters also noted: "Japan relies almost entirely on imported crude oil, and its trade environment has deteriorated following the outbreak of conflict in the Middle East. After a decade of large-scale economic stimulus measures, Japan’s adoption of a more accommodative monetary policy has further intensified yen depreciation."

The interest rate environment is also unfavorable for the yen. Although the likelihood of the Bank of Japan raising rates in June has increased, the market believes it lacks the power to reverse the yen’s weakening trend. Even if the BoJ raises rates by 0.25%, the policy rate will still remain at around 1% annually.

In contrast, the U.S. policy rate remains between 3.50% and 3.75%, creating a gap of over 2.5 percentage points. Chris Turner, Global Market Head at ING, told The Wall Street Journal: "To reverse the trend of real interest rate differentials, the market must expect Japan’s policy rate to exceed 1.5% next year. But given the current political and fiscal conditions, this is not easily achievable. Over the coming months, the exchange rate is likely to hover around 160 yen, or possibly retreat to 162–163 yen."

As the yen weakens, Japanese government bond prices have sharply declined (yields rise), intensifying fears of a "sell-off Japan."

Over the past month, long-term government bond yields across major countries have generally risen, with Japanese bond yields increasing particularly significantly. The 10-year Japanese government bond yield rose by approximately 7% this month, while the 10-year U.S. Treasury yield increased by only about 2%. The divergence is even more pronounced in ultra-long-term bonds. The 30-year Japanese government bond yield has risen by over 5% in the past month, compared to less than 0.5% for the 30-year U.S. Treasury yield.

On the 15th of last month, Finance Minister Kōtsu Kamata stated during a regular press briefing that although interest rates in major economies such as the United States and Germany are rising, Japan is closely monitoring volatility in its own government bond market.

Thus, there is widespread expectation that ongoing yen depreciation and rising bond yields will undermine investor confidence in Japanese assets.

Original article: toutiao.com/article/1866860210189312/

Disclaimer: This article represents the personal views of the author.