Reference News Network, January 16 report: According to the website of the "Nikkei Shimbun", on January 15, the Japanese yen has been continuously depreciating against the US dollar. On the 14th, in the European and American foreign exchange markets, the yen fell to 159.10 yen per US dollar, and then gradually stabilized. After Japanese Minister of Finance Hironobu Kamei and Financial Secretary Jun Miyama made statements to curb the depreciation of the yen, market expectations that the Japanese government might intervene in the foreign exchange market by buying yen led funds to re-enter the market to purchase yen again. In addition, US Treasury Secretary Bensinger's expressed concerns about the South Korean won's depreciation also caused the dollar to weaken and the South Korean won to strengthen, which also affected the yen buying and dollar selling trends.

Intervention warnings boost the yen

Kamei said on the 14th: "We will take appropriate measures, and we do not rule out any possible means to deal with excessive fluctuations, including speculation." Miyama said he "would not reveal any secrets (related to currency intervention)", but added: "There are no fundamental factors supporting the market movement since the 9th."

US Treasury Secretary Bensinger revealed on social media platform X that he met with South Korean Deputy Prime Minister Gyu Yoon-jong, who is responsible for economic affairs, on the 12th to discuss market movements. He believes that the recent decline in the South Korean won "does not match the strong fundamentals of the South Korean economy." According to a statement from the US Department of the Treasury, Bensinger also emphasized in the meeting "that he does not want to see excessive fluctuations in foreign exchange markets."

A European hedge fund manager pointed out: "The statements of central banks indicate that the environment for Japan and South Korea to intervene in the market and buy their own currencies has already been established under the tacit approval of the United States... As a tail risk, we must be prepared for coordinated or simultaneous interventions by Japan and South Korea to sell the dollar."

US, Japan, and South Korea may coordinate actions

The Singapore branch of Nomura International concluded in a report on the 14th: "South Korea and Japan have consistently expressed dissatisfaction with the depreciation of their currencies, so the risk of intervention in the foreign exchange market by both countries is increasing." The report recommends preparing in advance for situations where the dollar weakens, the yen strengthens, and the dollar weakens while the South Korean won strengthens.

Although South Korea's foreign exchange reserves are smaller than Japan's, which exceeded $1 trillion at the end of last year, it is still one of the few major holders of foreign exchange reserves globally. Moreover, as long as South Korea maintains good relations with the United States, it can flexibly obtain dollars through currency swap agreements. Although the foreign exchange market scale has expanded significantly over the past decade, the influence of Japan and South Korea remains significant.

At present, the market generally believes that the Japanese monetary authorities will only act if the yen falls below 161.90 yen per US dollar (the low point before the July 2024 intervention). In a report on the 12th, Bank of America predicted: "The probability of intervention is higher within the range of 162 to 165 yen."

However, the Japanese authorities may also believe that if the yen breaks through the important level of 161.90 yen per US dollar, the depreciation of the yen would lose control. Market participants should pay attention to the possibility that the Japanese government may intervene in the market between 159 to 162 yen, while closely monitoring the developments in the South Korean economy. The psychological battle between the market and the monetary authorities has entered a new stage.

According to Kyodo News on January 15, on January 14, the US Department of the Treasury announced that US Treasury Secretary Bensinger met with Japanese Minister of Finance Hironobu Kamei on the 12th in Washington. The former pointed out in the meeting that excessive fluctuations in exchange rates are undesirable.

Japanese Prime Minister Hayashi Sanae advocates an active fiscal policy, which may exacerbate Japan's fiscal difficulties. Out of concern for this risk, the yen has continued to weaken in the foreign exchange market.

Active fiscal policy hampers the exchange rate

The website of the "Nikkei Shimbun" reported on January 14: On January 14, the Japanese yen against the US dollar continued to fall for the third consecutive day in the Tokyo foreign exchange market, reaching the range of 159.14 to 159.15 yen per US dollar at 5 p.m. Given that Prime Minister Hayashi Sanae may dissolve the House of Representatives early, the concern about the risks of an active fiscal policy led to increased selling of the yen and buying of other currencies in the foreign exchange market.

The electronic version of the "Nikkei Shimbun" reported on the morning of the 14th: "Prime Minister Hayashi will inform the top leaders of the Liberal Democratic Party on the 14th that she plans to announce the dissolution of the House of Representatives after the opening of the regular session of the Diet on the 23rd." It is widely speculated that dissolving the House of Representatives early, in the context of high cabinet support ratings, could increase the number of seats for the ruling party, thereby lowering the threshold for implementing expansionary fiscal policies. Due to the heightened concerns about Japan's fiscal risks, there was an increase in yen selling and dollar buying, causing the yen to fall to around 159.45 yen per US dollar, hitting a low since July 2024.

The Nikkei 225 Index continued to rise on the 14th, surpassing 54,000 points for the first time. After several days of consecutive gains, the market speculated that the yen selling was to avoid currency losses on paper profits from Japanese stocks, which also put downward pressure on the yen exchange rate. (Translated by Liu Lin, Ma Xiaoyun)

Original: toutiao.com/article/7595907536537141798/

Statement: This article represents the views of the author himself.