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Saturday, 28 January 2023
Selling Focus Turns to Sterling as Yen Digests Losses

Selling Focus Turns to Sterling as Yen Digests Losses

2022-10-31

 

The moment the post-Abenomics era kicked off, Japan’s currency started looking like a pile of scrap. The yen’s plunge in the first quarter of this year is the most dramatic example of the consequences of the government’s “three arrows” agenda: monetary expansion, structural reform and fiscal stimulus. The yen’s slide was a double-edged sword. It made Japanese exports more competitive in overseas markets, but it also made imports more expensive and hurt the country’s export-dependent companies.

The first arrow of monetary policy — i.e., aggressive money printing — sparked a real estate and stock market bubble. The second one — i.e., structural reforms — has been exceedingly slow in coming. The third arrow — i.e., fiscal stimulus — is unpopular with the public and has yet to bear fruit. The end result: a once-unthinkable collapse in the value of the yen.

What is the yen worth?

As of December 28, 2018, the yen was worth 108.1 US cents. That’s a drop of around 15% against the US dollar since the summer of 2018.

The yen’s fall sent shockwaves around the world. It became a favorite “custodian of risk,” as risk took refuge in safe-haven assets. Many fixed income assets — including government bonds — lost value as investors demanded higher returns in light of the yen’s collapse.

The post-Abenomics era kicked off with a bang

In the years following the Great Recession, Japan experienced its longest period of growth on record. But the good times couldn’t last forever.

The “three arrows” strategy was unveiled by Prime Minister Shinzo Abe’s government in December 2013. The plan was to enact quantitative easing, push through structural reforms and launch fiscal stimulus. For the most part, however, the policy initiatives implemented under Abe’s “third arrow” — monetary easing and a massive increase in government spending — got top billing.

Japan’s post-Abenomics era began in earnest in the second half of 2014, when the Bank of Japan embarked on its unconventional monetary policy measures. The bank drastically increased its purchases of government bonds and mortgage-backed securities, which pushed government debt to over 240% of Japanese GDP by the end of that year.

The currency’s slide accelerated in early 2018

The yen’s slide accelerated in early 2018. That’s when the Bank of Japan raised its target for the country’s inflation rate to 2%. The move sent the yen plummeting in Asian trade and sparked a scramble by Japanese companies to repatriate profits stashed overseas.

At the same time, the political situation in the US took a turn for the worse, with the “tax reform” bill passed by the Republican Congress and Donald Trump’s controversial summit with North Korean leader Kim Jong-un. The yuan’s depreciation accelerated in the second half of the year, and it also took a hit in the wake of the G-20 meeting in Osaka, where the global elite struck a decidedly dovish tone on trade.

The yen’s value peaked in the summer of 2018

The yen’s value peaked in the summer of 2018. That’s when the greenback started gaining ground against the Japanese currency, pushing it below 110 to the dollar.

Investors flocked to the perceived safety of US assets in the face of a more aggressive and unpredictable China, which is expanding its presence in the Indo-Pacific region. The dollar’s sustained strength against the yen made Japanese exports more competitive in overseas markets and also made Japanese imports cheaper for local consumers.

At the same time, the yen’s sustained strength against the greenback sparked fears that the country’s current account — its trade balance — was in permanent decline. That in turn prompted the Bank of Japan to launch an expansive “helicopter money” program in February, which sent the yen spiraling even lower.

The yen’s value peaked in the summer of 2018

The yen’s value peaked in the summer of 2018. That’s when the greenback started gaining ground against the Japanese currency, pushing it below 110 to the dollar.

 
 

Investors flocked to the perceived safety of US assets in the face of a more aggressive and unpredictable China, which is expanding its presence in the Indo-Pacific region. The dollar’s sustained strength against the yen made Japanese exports more competitive in overseas markets and also made Japanese imports cheaper for local consumers.

At the same time, the yen’s sustained strength against the greenback sparked fears that the country’s current account — its trade balance — was in permanent decline. That in turn prompted the Bank of Japan to launch an expansive “helicopter money” program in February, which sent the yen spiraling even lower.

The yen’s value peaked in the summer of 2018

The yen’s value peaked in the summer of 2018. That’s when the greenback started gaining ground against the Japanese currency, pushing it below 110 to the dollar.

Investors flocked to the perceived safety of US assets in the face of a more aggressive and unpredictable China, which is expanding its presence in the Indo-Pacific region. The dollar’s sustained strength against the yen made Japanese exports more competitive in overseas markets and also made Japanese imports cheaper for local consumers.

At the same time, the yen’s sustained strength against the greenback sparked fears that the country’s current account — its trade balance — was in permanent decline. That in turn prompted the Bank of Japan to launch an expansive “helicopter money” program in February, which sent the yen spiraling even lower.

The post-Abenomics era kicked off with a bang

In the years following the Great Recession, Japan experienced its longest period of growth on record. But the good times couldn’t last forever.

The “three arrows” strategy was unveiled by Prime Minister Shinzo Abe’s government in December 2013. The plan was to enact quantitative easing, push through structural reforms and launch fiscal stimulus. For the most part, however, the policy initiatives implemented under Abe’s “third arrow” — monetary easing and a massive increase in government spending — got top billing.

Japan’s post-Abenomics era began in earnest in the second half of 2014, when the Bank of Japan embarked on its unconventional monetary policy measures. The bank drastically increased its purchases of government bonds and mortgage-backed securities, which pushed government debt to over 240% of Japanese GDP by the end of that year.

The currency’s slide accelerated in early 2018

The yen’s slide accelerated in early 2018. That’s when the Bank of Japan raised its target for the country’s inflation rate to 2%. The move sent the yen plummeting in Asian trade and sparked a scramble by Japanese companies to repatriate profits stashed overseas.

At the same time, the political situation in the US took a turn for the worse, with the “tax reform” bill passed by the Republican Congress and Donald Trump’s controversial summit with North Korean leader Kim Jong-un. The yuan’s depreciation accelerated in the second half of the year, and it also took a hit in the wake of the G-20 meeting in Osaka, where the global elite struck a decidedly dovish tone on trade.

The yen’s value peaked in the summer of 2018

The yen’s value peaked in the summer of 2018. That’s when the greenback started gaining ground against the Japanese currency, pushing it below 110 to the dollar.

Investors flocked to the perceived safety of US assets in the face of a more aggressive and unpredictable China, which is expanding its presence in the Indo-Pacific region. The dollar’s sustained strength against the yen made Japanese exports more competitive in overseas markets and also made Japanese imports cheaper for local consumers.

At the same time, the yen’s sustained strength against the greenback sparked fears that the country’s current account — its trade balance — was in permanent decline. That in turn prompted the Bank of Japan to launch an expansive “helicopter money” program in February, which sent the yen spiraling even lower.

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