When many people talk about the yen, they think of a safe haven. It is true that the Japanese Yen has a safe-haven constitution, but let’s first understand the concept of safe-haven assets correctly.
1. Re-understanding "risk avoidance"
Traditionally, the more recognized "safe haven assets" in the market include gold, Japanese yen and Swiss franc. The concept of "safe haven assets" is proposed because some assets will perform more eye-catching when the market experiences extreme fluctuations, so they undertake a certain "safe haven function". From another perspective, no matter what the situation is, the market will have certain preferences. The so-called "safe haven assets" are just a normal asset allocation. In this way, asset allocation under normal market conditions can generally be regarded as "risk asset" allocation. Therefore, we don't have to pay special attention to the so-called "safe haven assets"-this is just a normal market behavior, just like you will open an umbrella when it rains.
The next question is, why are gold, the yen and the Swiss franc such safe-haven assets? Gold is easier to understand, and under extreme circumstances—especially wars—gold can become a “hard currency.” The Swiss franc is due to Switzerland's long-term status as a "neutral country". In the event of a war, Switzerland is relatively easy to avoid war.
2. The hedging logic of the yen
The status of the yen as a "safe haven asset" is more interesting. There are many theories in the market. One theory comes from "Mrs. Watanabe" , that is, Japanese housewives actively participate in foreign investment. "Wives" often like to invest in various risky assets overseas, but if there are market fluctuations, they will choose to sell overseas assets. Naturally, these funds will become yen and return to Japan. Of course, the reason for this enthusiasm for overseas investment is also because the interest level of the yen is low, and the return rate of yen assets is therefore not attractive enough.
Another argument is related to the low interest rates of the yen. Because Japan has been in economic stagnation for a long time, the interest rate of the yen will remain at a relatively low level for a long period of time, while in most economies in the world, the market is generally expecting the normalization of interest rates. Under such an expectation, the yen will always be in the situation of "unfavorable interest rate". To put it another way, once the market fluctuates, there is a possibility of interest rate cuts in most economies, and the interest rate of the yen has long been irreversible, so the market will choose to put funds in more "certain" assets.
"Unfavorable interest rates" bring about the "risk-averse nature" of the yen. In the foreign exchange world, no matter what happens outside, the relationship between interest rates and exchange rates still needs to be considered in the end.
There have been many safe-haven trades in the Japanese Yen over the years, and here is a notable one in the past 10 years.
At 13:46 on March 11, 2011, an earthquake with a magnitude of 9.0 occurred in the international waters of the Western Pacific Ocean. The epicenter was located at 38.1 degrees north latitude and 142.6 degrees east longitude, with a focal depth of about 10 kilometers. The Japan Meteorological Agency initially rated the magnitude of the earthquake as 7.9, then immediately corrected it to 8.8, 8.9, and then back to 8.8, and finally rated it as 9.0. According to Japan's "Sankei Shimbun", statistics from the Japanese National Police Agency show that as of the morning of March 30, 11,232 people were confirmed dead in the 12 prefectures affected by the disaster in Japan, and the police received 16,361 missing persons from their families, totaling 27,593 .
The earthquake caused a surge in the exchange rate of the yen in the foreign exchange market. Within a week after the earthquake, the yen appreciated by up to 8%, and it also hit the highest point in the past 10 years - 76 yen to 1 US dollar. From such a situation, we can also see the safe-haven nature of the yen.
3. The Bank of Japan’s wayfinding
Of course, the most interesting topic on the yen exchange rate is the Bank of Japan. If you carefully observe the monetary policy decisions of the Bank of Japan over the past many years, you will actually find that this central bank is a very creative bank. It may be hard to imagine that in the past five years or so, the Bank of Japan has created countless easing concepts. The introduction of these easing concepts has a very close relationship with one person, that is, Japan's current Prime Minister Shinzo Abe.
Abe is a legend. He was once Japan's youngest postwar prime minister. In 2012, Abe was elected Prime Minister of Japan for the second time. At this time, he launched the famous Abenomics. Abenomics is called the three-arrow policy. The first arrow is a positive financial policy, and the second The arrow is a flexible fiscal policy, and the third arrow is to promote and develop private investment, that is, structural reform. However, Abe did not promote Japan's structural reforms. Instead, he made the most daring loosening attempt in Japan's postwar history in terms of monetary policy.
Looking at the records of the Bank of Japan, we can find this series of interesting records. In February 1999, the zero interest rate was started, QE was started in March 2001, and QE returned in January 2009. But the most creative pace of easing started in 2013.
In January 2013, the Bank of Japan decided to set the target of price stability at 2%, and reaching the target does not mean that the CPI reaches 2%, but refers to maintaining the target of CPI at 2% for at least two years. This is a revolutionary statement. Generally speaking, the central bank hopes to control the inflation target at a certain level, rather than let inflation reach a target. This has left a foreshadowing for the Bank of Japan's subsequent substantial easing. It is worth mentioning that until today Japan has not achieved the 2% inflation target.
In April 2013, the Bank of Japan launched the famous quantitative and qualitative easing policy (QQE) . The Bank of Japan said it would double its monetary base, as well as its purchases of Japanese government bonds and ETFs. According to the estimates of the Bank of Japan, after the implementation of such a policy, the base currency of the Bank of Japan will increase from 138 trillion yen at the end of 2012 to 210 trillion yen at the end of 2013 and 270 trillion yen at the end of 2014. The Bank of Japan will purchase 7 trillion yen of Japanese government bonds, which is a very crazy pace of monetary policy easing.
It can also be seen that if the total assets of the Bank of Japan are calculated according to the proportion of GDP, it was still 20% in 2010, but it has reached 95% of GDP now. Because of such a series of crazy operations, the yen The exchange rate against the U.S. dollar was still around 80 in 2012, and it reached the level of 100 yen in 2014, which means that the yen has depreciated by 30% in more than two years, but such a crazy The move did not bring about any recovery in Japan's economy, nor did it bring about a pick-up in inflation.
On October 31, 2014, the Bank of Japan made another resolution to increase quantitative and qualitative easing. According to this resolution, the Bank of Japan’s bond purchase scale will reach 80 trillion yen per year, compared with the previous That's roughly an increase of 10 to 20 trillion yen per year. This continued to depreciate the yen, which depreciated from 100 to 120 against the dollar after this meeting.
But since then the yen has embarked on a years-long appreciation process, and in general, the market is getting tired of the Bank of Japan's easing process. Personally, I believe that the meeting in October 2014 was a watershed moment for the performance of the yen exchange rate. At that time, this resolution was passed by a narrow majority of 5:4, and the key vote came from Haruhiko Kuroda, Governor of the Bank of Japan. The previous quantitative and qualitative easing interest rate resolution in 2013 was passed unanimously, so it is obvious that , The Bank of Japan is also divided on whether monetary policy is effective.
By December 2015, the Bank of Japan once again made supplementary provisions for quantitative and qualitative easing. The Bank of Japan stated that it would establish a new ETF purchase plan, and at the same time extend the average period of holding Japanese government bonds from the then 7-10 years By 7-12 years, in addition to adjusting the purchase plan of REIT, the purchase scale of this REIT was increased from 5% of the total issuance of REIT to 10%, and the Bank of Japan also decided to expand the scope of eligible collateral for central bank credit.
But generally speaking, the market is not particularly interested in this meeting. Everyone still tends to think that the Bank of Japan has some tricks.
Against such a market background, on January 29, 2016, the Bank of Japan once again released a big move, which is to realize the so-called negative interest rate. Specifically, it is also the reserves deposited by Japanese financial institutions in the central bank. The Bank of Japan will implement- 0.1% interest rate, that is to say, commercial banks have to pay 0.1% interest to the Bank of Japan. This move actually hopes to encourage commercial banks to invest more funds in the real economy , but despite the Bank of Japan's big move, the market reaction is still relatively flat.
In September 2016, the Bank of Japan came up with a new concept. This time there are two new terms, one is called interest rate curve control, and the other is the commitment to overshoot inflation.
This sounds a bit of a mouthful, what is interest rate curve control? That is to say, in addition to quantitative means, the Bank of Japan has also made a commitment to the actual price of the market. The market believes that the general commitment is that the yield of Japan's 10-year government bond is around zero. Another commitment to inflation overshooting means that the inflation level must exceed 2% and be maintained for a period of time. This is a new change from the previous 2% and maintain for a period of time. In fact, we have tried everything possible to set our own inflation target. After this policy, the yen has depreciated to a certain extent, but overall the rate is not very large.
So looking back at the efforts made by the Bank of Japan over the years, it is actually obvious that Japan has exhausted all methods to get rid of its economic difficulties. However, judging from inflation expectations and actual inflation levels, Japan is still a long way from its own goals.
Fundamentally speaking, if there is no structural reform, no improvement in productivity, and no progress in international competitiveness, it is actually difficult to fundamentally change a country's economic fundamentals through the central bank's monetary policy. So this is also to look at the exchange rate from the perspective of economic fundamentals. Of course, the arduous efforts of the Bank of Japan over the past so many years include creating so many wonderful new vocabulary about monetary policy for us. As the pioneer of the global easing policy, the efforts of the Bank of Japan clearly tell us that if the economy itself does not change, it is futile to do more noun innovations.
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