"Can 'hoarding yen' really make money?" "Can the yen buy the bottom?" With the sharp drop in the yen exchange rate, some netizens regard buying yen as a new way to manage money, and some posts on social platforms to share the experience of "hoarding yen" have also attracted a lot of attention.
The so-called "yen hoarding", simply put, is to buy when the yen exchange rate is low and sell when the exchange rate recovers, in order to obtain the benefit of yen appreciation. This is seen as a new way of managing and investing.
In the New York foreign exchange market on April 15, the yen depreciated against the dollar, updating a 34-year low. So, is it appropriate to "hoard yen" now?
Japan has had frequent foreign exchange interventions in 2022
China-Singapore Jingwei quoted Japan's Kyodo News Agency as reporting that in the New York foreign exchange market on the 15th, the yen depreciated against the US dollar, once reaching above 154 yen per dollar, refreshing a 34-year low. Japan's Kyodo News Agency believes that the U.S. statistics released on the same day exceeded market expectations, and investors predicted that the Federal Reserve (FRB) would postpone interest rate cuts and the interest rate differential between Japan and the United States would not narrow, so they sold yen to buy dollars. This morning, the yen traded at 154.39 against the dollar.
It is understood that the last time the Japanese government and the Bank of Japan implemented foreign exchange intervention was in 2022, and the foreign exchange intervention of buying yen and selling dollars was implemented a total of 3 times in 2022. The first intervention took place on September 22, 2022, when the exchange rate exceeded 145 yen per dollar. The intervention allowed the yen to appreciate by almost 5 yen at one point. However, in the following two weeks, it fell again to around 145 yen. On October 21, 2022, the Japanese government and the Bank of Japan intervened decisively again, causing the yen exchange rate, which was originally at 151.94 yen, to rise to around 144 yen at one point. This was followed by another intervention on the 24th of the same month, which succeeded in preventing another depreciation of the yen.
Since the beginning of this year, the yen has fallen by more than 8% against the dollar. The market has been looking at 152 yen as a key level for the Bank of Japan to intervene, but so far there have been no clear signs of intervention. The latest report from the U.S. Commodity Futures Trading Commission (CFTC) shows that hedge funds have increased their short positions in the yen to their highest level since January 2018.
Is it appropriate to "stock up on yen" right now?
So, is it appropriate to "hoard yen" now? Some netizens believe that the yen can still fall, and it is not possible to buy the bottom yet. Some netizens believe that the current decline in the yen exchange rate is due to the fact that professional institutional investors have increased their short positions in the yen, and the exchange rate will fluctuate.
Some analysts believe that the yen will continue to fall, possibly by another 10% from Monday's close, to its lowest level since the 80s. Quentin Fitzsimmons, global fixed income portfolio manager at T. Rowe Price Group, said in a recent media interview that the Japanese government does not want the national currency to appreciate significantly at the moment. Even if they raise interest rates, they probably won't raise them much, as that would raise concerns about debt sustainability.
Tan Yaling, president of the China Foreign Exchange Investment Research Institute, said that investing in the yen is more complicated, and from what she has observed and learned about foreign exchange, there are more people who lose money in yen than those who make money. Japan's monetary policy is more affected by external factors, and the relationship between the yen and the renminbi is more complicated. Because the yen depends on the relationship with the dollar, and the yuan depends on the logic with the dollar. At present, the yen is depreciating extremely, and the renminbi is also depreciating against the dollar, so there is great uncertainty about whether the renminbi will appreciate or depreciate against the yen in the future.
"The most direct reason for the current decline in the yen exchange rate is the interest rate differential between the dollar and the yen. Wang Yang, chief foreign exchange strategist of Huijin Tianlu Risk Management Technology Co., Ltd., said that the Federal Reserve has raised interest rates 11 times in a row since March 17, 2022, raising the federal interest rate from 0-0.25% to 5.25%-5.50%, a total of 525 basis points, and major developed countries have followed the United States in raising interest rates one after another during the same period. However, the Bank of Japan (BOJ) maintained negative interest rates until March 19 this year, raising interest rates by just 10 basis points for the first time since 2007, while also saying that it would not consider further rate hikes in the near future.
Wang Yang said that this disappointed the market's previous expectation that the Bank of Japan's monetary policy might turn around, and turned to sell the yen again. In contrast to this, the Fed's interest rate cut schedule has been repeatedly postponed. At the same time, the performance of the eurozone, Japan and other economies is not as good as that of the United States, so the dollar is once again sought after by the market.
Regarding the current move of some people choosing to hoard yen, Wang Yang said that from the history of the past 30 years, it is clear that the yen is at a seriously undervalued level. But if we look at the technical trend, because USD/JPY has just broken through the 34-year high, the short-term risk is relatively large now. There is no obvious sign of a peak at the moment, and there is still a certain risk of selling the dollar and buying the yen at this time. In his opinion, it is not suitable to buy the yen at this stage.
Information sources: China-Singapore Jingwei, Red Star News, Finance Associated Press, etc