"I made money on my 1.4 million yen." The yen is appreciating sharply, what's next?
2024-08-08
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Chao News Client Reporter Wu Enhui
In the past two days, the foreign exchange market has undergone sudden changes.
On August 5, the yen exchange rate against the U.S. dollar rose above 141 yen per dollar, reaching its highest level in seven months.
Ms. Chen, an investor in Hangzhou, has bought 1.4 million yen this year. Last month, she was about to give up at a loss, but on August 5, things suddenly took a turn for the better.
"It rose sharply in one day, and it has risen back to normal, and I even made a little profit." Ms. Chen told reporters that as a newbie with only limited knowledge, the sharp fluctuations in the exchange rate made her a little scared.
The picture shows a screenshot of the Japanese yen against the RMB at around 2:00 p.m. on August 5.
It's not just small retail investors who are worried. The sharp fluctuations in the yen exchange rate in the past two days have made the capital market witness history. Global stock markets fluctuated violently from August 5 to 7, with the Nikkei index of Japan's stock market falling by a record number of points on the 5th.
In the two days after August 5, the yen was stuck between depreciation and appreciation. What will happen to the yen exchange rate in the future? A senior banker said in an interview with a reporter: The yen exchange rate against the US dollar will fluctuate between 130 yen to 150 yen per dollar in the future, and the era of super depreciation of the yen may have ended.
Purchase 1.4 million yen in batches
I want to wait for it to rise a bit more.
Ms. Chen, born after 1985, told reporters that she had done some research on the financial market. At the beginning of this year, seeing that domestic bank deposit interest rates were generally not high and there was an expectation of an interest rate hike for the Japanese yen, she used some of her spare money to buy Japanese yen as an investment.
"I thought that compared with the 3% return of domestic banks, there should be some profit from the 3% return on the yen exchange rate." Ms. Chen then bought yen in batches. She first bought 500,000 yen in February, and then bought 500,000 yen and 400,000 yen in April and June.
"The first purchase was 100 yen at 4.8 yuan. It fell in the following months. I felt very tortured for a while. I thought I was stuck in A-share speculation, and I would be stuck again if I bought yen. My friend said that if the yen was stuck, it would take a long time to get out of it." Ms. Chen said that especially after seeing the yen hit a 38-year low against the dollar last month, she felt a chill in her heart even in the hottest weather and almost sold out all her stocks.
However, a turnaround soon arrived. After the yen fell to a 38-year low in early July, it began to soar from July 11. In July, the yen appreciated by more than 7% against the dollar, making it the best performing currency in the world that month.
It took only seven days for 100 Japanese yen to exchange for 4.69 RMB on July 30 and 100 Japanese yen to exchange for 5.0 RMB on August 5.
The picture shows a screenshot of Ms. Chen’s account at around 6 p.m. on August 5.
Especially after the big rise on August 5, Ms. Chen has made money. "Now the 1.4 million yen has outperformed the domestic bank deposit interest rate. I want to keep it for a while and sell it when it rises. I feel that if the trend is formed, it will not end so soon." On August 5, Ms. Chen told reporters that after the big rise, she was full of confidence and felt that "making 10% this year should be within her grasp."
After a 38-year low, it soared
What happened to the Japanese yen?
Although she had made a profit on paper, Ms. Chen felt that Japanese yen was not something that an average novice could invest in.
Since the end of last year, the yen has experienced a continuous depreciation against the dollar, falling from about 141 to a high of about 162, a 38-year low. Even after the Bank of Japan withdrew from its negative interest rate policy, the yen's depreciation trend continued.
The rapid appreciation of the yen exchange rate began on July 31. On that day, the Bank of Japan announced a 15 basis point interest rate hike, raising the policy rate to 0.15%-0.25%, the first rate hike since the lifting of the negative interest rate policy in March this year. At the same time, the Bank of Japan decided to reduce the scale of Japanese government bond purchases by about 400 billion yen each quarter in the next one to two years.
Immediately after the release of the US non-farm payrolls data for July, the market significantly increased its expectations for the extent of the Federal Reserve's interest rate cuts in September and the number of rate cuts this year, and the US dollar index came under pressure to fall.
In the following days, the yen continued to rise against the dollar. On August 5, the yen-dollar exchange rate rose to above 141 yen per dollar, setting a new high since January this year.
Image source: Visual China
A senior investment consultant at the private banking department of a state-owned bank in Zhejiang believes that "Japan's hawkish monetary policy directly triggered a sharp rise in the yen against the U.S. dollar." He analyzed and pointed out, "Previously, when the Bank of Japan maintained negative interest rates for a long time, Japanese local investors and international capital borrowed low-interest yen and then converted them into foreign currencies such as U.S. dollars to invest in high-yield financial assets in other countries. Now, as the interest rate gap between Japan and the United States has narrowed, the cost of yen arbitrage transactions has risen, and the attractiveness has declined. Investors are more likely to buy yen and sell dollars."
Where is the Japanese Yen heading?
Experts believe that the era of super depreciation of the yen may be over
Just when Ms. Chen felt that she had won the game, the Japanese yen experienced another major change on August 7.
On the same day, Shinichi Uchida, deputy governor of the Bank of Japan, said that if the outlook becomes a reality, the degree of easing will be adjusted. At present, it is necessary to firmly maintain the easing policy and not raise interest rates when the market is unstable. Subsequently, major stock indexes in the Asia-Pacific region rebounded across the board, Japanese stocks turned from falling to rising, the yen depreciated significantly, and the US dollar against the yen broke through the 146 and 147 levels.
From August 5 to August 7, in just two days, the global capital market was shaken violently by the yen, and the direction of the yen almost determined the recent rise and fall of the capital market. While Ms. Chen was concerned about whether she could earn a 10% return, the global market was more concerned about: What will happen to the yen next?
The picture shows the Japanese yen exchange rate on the morning of August 8
UBS believes that the exit from the USD/JPY carry trade has just begun, but in the short term, the currency pair may consolidate in the summer before continuing to fall. The next major event should be the Fed's interest rate cuts starting in September. The UBS economic team expects the Bank of Japan to raise interest rates by 25 basis points in October and two more rate hikes in 2025. UBS strategists lowered their forecast for the USD/JPY exchange rate at the end of this year from 160 to 145, and lowered their forecast for the end of 2025 from 140 to 130.
Well-known economist Pan Helin said in an interview with reporters: "The recent appreciation of the yen is driven by two main factors: on the one hand, the Bank of Japan's interest rate hike, and on the other hand, the decline in US technology stocks has led to a reversal of yen carry trade, and a large amount of funds have flowed back to Japan to repay debts. Combining these two points, the Bank of Japan's expected interest rate hike is not a short-term behavior, and the trend of de-bubble and deleveraging of US technology stocks remains to be seen, so I predict that the yen exchange rate still has room for appreciation. If the US stock market continues to fall, then this appreciation space will be even greater."
"My personal opinion is that the yen exchange rate against the dollar will fluctuate in the range of 130 yen to 150 yen to the dollar for some time to come, and the era of super depreciation of the yen may be over." A senior manager of the international department of a large state-owned bank in Zhejiang said in an interview with reporters, "On August 7, the Bank of Japan said it would not raise interest rates when the market is unstable. I think this just shows that the Bank of Japan is concerned about the exchange rate. The impact of interest rate hikes on the yen exchange rate is not long-term, and I don't think it is particularly likely that Japan will raise interest rates in the future." The senior manager further pointed out: The direction of carry trades in the global market is the fundamental factor that determines the yen exchange rate. The cancellation of carry trades itself is a matter of scrambling. The entire trend will not be reversed in the short term. The yen will not stabilize until the carry trades are almost stabilized.
For ordinary investors who buy yen, the senior manager advises "be cautious". He believes: "From an investment perspective, the yen fluctuates greatly, so individual investors should be cautious. To invest in the yen, you need to have a deep understanding of the nature of the yen carry trade and the fundamentals of the entire Japanese economy, which requires a high level of professionalism."
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