critical! The Japanese yen was suddenly attacked by an air attack! How big is the impact?

International capital is aggressively shorting the yen.

Currently, the degree of short selling in the Japanese yen is comparable to that on the eve of the financial crisis. According to the latest data released by the U.S. Commodity Futures Trading Commission, in the week ending April 2, the net short position of yen held by global hedge funds and asset managers rose to 148,388 shares, the highest level since January 2007. .

Reflecting on the market level, the Japanese yen is facing huge depreciation pressure. The exchange rate of the US dollar against the Japanese yen is approaching the lowest point in 34 years, and is also approaching the possible intervention line of 152 by the Japanese Ministry of Finance.

The sharp fall of the Japanese yen may be a typical "microcosm" of the current global exchange rate market. Recently, other non-US currencies such as the Korean won, Swiss franc, and Indonesian rupiah have also faced greater depreciation pressure. Analysts pointed out that the main reason behind this may be the continued strength of the US dollar and the plummeting expectations of the Federal Reserve's interest rate cut.

Short the Japanese Yen

According to the latest data released by the U.S. Commodity Futures Trading Commission, in the week ending April 2, the net short position of yen held by global hedge funds and asset managers rose to 148,388 shares, the highest level since January 2007. .

Regarding the wave of massive short selling, analysts pointed out that given the widening interest rate gap between Japan and the United States, there is still room for the yen to weaken further.

Marito Ueda, director of market research at SBI Liquidity, said economic indicators and even statements from Bank of Japan officials are not enough to make them yen buyers and that more yen selling is likely to occur, but this is likely to be related to the timing of Japan's monetary authorities' intervention. A conflict occurs.

This shows that the Bank of Japan’s first interest rate hike in seventeen years has hardly changed the foreign exchange market pattern dominated by the Federal Reserve.

With the massive short selling of international capital, the Japanese yen is approaching a 34-year low and is already close to the possible intervention line of 152 by the Japanese Ministry of Finance.

Regarding the recent depreciation of the yen, Japanese officials issue warnings about currency market speculation almost every day.

Currently, the market’s predictions for the Bank of Japan to intervene again are heating up. Analysts generally believe that before the Federal Reserve begins to cut interest rates, the Bank of Japan may not be able to completely reverse the yen's decline by relying solely on "verbal intervention + market intervention" in the exchange rate.

On April 8, Takehiko Nakao, former financial officer of the Japanese Ministry of Finance, said that if the yen fluctuates excessively enough to require intervention, the authorities may intervene in the foreign exchange market at any time. He pointed out that if the level of the yen and its basic trend are judged from the signs of speculation, he would not be surprised by the authorities' intervention at any time.

U.S. CPI inflation data to be released this week may also further indicate that the Federal Reserve does not have to rush to cut interest rates, pushing up the volatility of the yen.

Thanos Vamvakidis, global head of currency strategy at Bank of America, said the Bank of Japan is expected to intervene when the U.S. dollar against the yen is at 152. If the Fed does not cut interest rates, the U.S. dollar against the yen will rise to as high as 160; if the Fed cuts interest rates, the U.S. dollar against the yen may rise to 160. dropped to 142.

Pressure from the Bank of Japan

The latest signal released by Japan's economic level may also be one of the reasons why the market is aggressively shorting the yen.

On April 8, the February monthly labor statistics survey (initial value, units with more than 5 employees) released by the Ministry of Health, Labor and Welfare of Japan showed that actual wages, taking into account price changes, decreased by 1.3% compared with the same period last year, and the decline was larger than the previous year. This is the 23rd consecutive month of year-on-year decline.

As real wages fell, CPI accelerated to 2.8% in February, the fastest growth since November last year. The result may keep the Bank of Japan on hold for the time being.

Kota Suzuki, an economist at Daiwa Securities, said that if real wages become positive, it will be easier for the Bank of Japan to take action.

Kota Suzuki expects real wage growth to turn positive by the middle of this year, when large pay increases resulting from wage negotiations will be reflected in employment numbers and inflation will slow.

In addition, a report released on the 8th by the Tokyo Shoko Research Institute, a Japanese private enterprise credit survey agency, shows that as the preferential loans issued by the government during the new crown epidemic have expired, the financial situation of some enterprises has deteriorated. In the 2023 fiscal year (April 2023 to 2024) March) The number of bankrupt companies in Japan increased significantly. The report said that in the last fiscal year, the number of bankrupt companies in Japan with debts exceeding 10 million yen (approximately 152 yen for 1 U.S. dollar) increased by 31.58% year-on-year to 9,053, and the total liabilities of bankrupt companies exceeded 2.46 trillion yen.

US dollar counterattack

The sharp fall of the yen may be a "microcosm" of the current global exchange rate market.

Recently, G10 non-US currencies such as the Korean won and the Swiss franc have continued to depreciate. Among them, the exchange rate of the US dollar against the Korean won once rose to 1356.84 on April 8; the US dollar against the Swiss franc once rose to 0.9065.

According to data from the U.S. Commodity Futures Trading Commission, speculators' bets on a stronger dollar have reached a peak, especially against G10 currencies, especially the Japanese yen and Swiss franc.

Among them, the situation of the Swiss franc is similar to that of the Japanese yen, and the current net short position has reached the highest level in the past five years, showing the market's bearish sentiment towards the Swiss franc.

Investors' net long positions on the U.S. dollar have reached high levels, reflecting strong confidence in a stronger dollar. Reflecting on the market level, the U.S. dollar index has continued to strengthen since 2024, and so far, the cumulative increase during the year has reached 3%.

Faced with the strong counterattack of the US dollar, some central banks have begun to take action.

Among them, Turkey announced on March 21 this year that it would raise its benchmark interest rate by another 500 basis points to 50%. This was the first time the Turkish central bank raised interest rates again after announcing the end of the interest rate hike cycle in January.

Indonesia directly intervened in the interbank, forward and bond markets to stabilize its currency; Swedish officials said that the depreciation of the krona may delay its first easing measures.

Behind the unexpected strength of the U.S. dollar is the market's repricing of expectations for an interest rate cut by the Federal Reserve in 2024.

The latest U.S. non-farm payrolls data for March exceeded expectations, causing expectations of the Federal Reserve to cut interest rates in June and pushing the U.S. dollar index to remain above the 104 mark.

Matt Simpson, senior analyst at Gain Capital Group, said that if the Fed is really data-driven, it will be difficult to cut interest rates. The market is now fully pricing in the first rate cut taking place in September rather than July this year.

In fact, a series of U.S. economic data since 2024 have exceeded expectations, including higher-than-expected inflation data in January and February, and stronger-than-expected ISM manufacturing data in March, which makes the market more inclined to believe that the Federal Reserve will cut interest rates this year. No longer necessary.

At the same time, many Federal Reserve officials continue to release "hawkish" signals, causing more and more Wall Street economists in China to begin to predict that there may not be an interest rate cut within this year.

Ed Yardeni, president and chief investment strategist of investment company Yardeni Research, pointed out in a report that the market may have begun to bet on the possibility that the Federal Reserve will not cut interest rates this year.