As it turns out, the currency collapse is the price Japan is paying for years of crazy monetary policy.
Written by Wolf Richter of Wolf Street.
Today, despite the endless copy-paste jaw-dropping by the Japanese authorities and some market intervention, the yen has fallen to 154.7 yen to the dollar, as the Bank of Japan buys back the yen it created in times like these. Despite selling off hard-earned dollars, it hit a 34-year low. Reckless abandon – to support the yen.
The yen has fallen 32% against the US dollar since 2021, when other central banks began moving away from quantitative easing and zero or negative policy rates. Then, in 2012, the newly elected Prime Minister Shinzo Abe implemented a fiscally wasteful economic policy (“Abenomics”) financed by money printing, a huge amount of money printed that was reinforced by the Yield Curve Control System in 2016. Since then, these rates have collapsed by 50%. , kept the 10-year bond yield close to 0%.
Over the past decade, the Bank of Japan has taught important lessons to central banks around the world. “It doesn’t matter if we print an infinite amount of money. You see how we do it?” – Basically, if you buy more than half of the national debt with newly created yen and other securities , no bad consequences will occur. Now that lesson has been proven to be false. The yen is plummeting. In the end, we have to pay the price of currency destruction.
The only surprising thing is how long this kind of crazy monetary policy can last before something breaks, but then something big like the currency breaks. And it turns out that the free lunch theory that was driving all of this was false.
The Bank of Japan is starting to react in small, small steps, but these small, small steps do nothing to stop the destruction of the yen. The circle is still destroyed, but its width is slightly smaller.
This process began in December 2022, by which time other central banks had raised their policy rates significantly and had turned to QT. It was at this time that the Bank of Japan “shocked” the market by raising the cap on 10-year government bond yields to 0.5%. The cap will be raised to 1% in 2023. And in October 2023, that explicit cap was abolished. At its policy meeting in March, the Bank of Japan said:
- Quantitative monetary easing will be maintained, and the government will continue to purchase government bonds at approximately the same amount as before, at about 6 trillion yen ($40 billion) per month, depending on market conditions.
- OMG ended its negative interest rate policy by raising short-term interest rates by a staggering 10 basis points from -0.1% to 0.0%, marking the first interest rate hike since 2007.
- Yield curve control appears to be over, but not completely abandoned.
- Although we had stopped purchasing stock ETFs and J-REITs in 2023, we have officially ended purchasing stock ETFs and J-REITs.
- The bank said its purchases of corporate bonds and debt had slowed but not stopped, and would be completely completed within about a year.
So, while the Bank of Japan has taken only a few microsteps to move away from crazy monetary policies, it is still largely sticking to these policies and continues to push them forward, albeit at a slower pace. Currency destruction in the workplace.
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