The global central bank played a “chorus of raising interest rates”, but the Bank of Japan “singed the opposite tune” and adhered to the loose monetary policy, triggering a heavy depreciation of the yen.
The Bank of Japan on Thursday (28th) reiterated its loose monetary policy stance and said it would buy unlimited amounts of bonds at fixed interest rates every working day if needed.
The move triggered a sharp depreciation of the yen against the US dollar on Thursday, which closed down 1.84% in New York trading at 130.82 yen to the US dollar, the lowest level since April 2002.
Economists said that economic fundamentals are worse than other developed economies, monetary policy divergence and trade deficits continue to widen, which are the main reasons for the continued depreciation of the yen.
Wall Street News reported that the “butterfly effect” brought about by the continued depreciation of the yen has begun to appear, and Asian currencies have weakened recently. The Philippine peso fell 2.1 percent.
As a result, the market began to speculate that this time the yen took the lead in the rapid devaluation. Will it be the same as in 2012, the prelude to the “currency war” in Asia?
Historical experience shows that the devaluation of Asian currencies is highly “contagious”. On the one hand, Asian economies have similar trade structures and share the common feature of export orientation. On the other hand, the exchange rate is a “beggar-thy-neighbor” economic variable. , running slower means more pressure, and the yen tends to run the earliest.
Southeast Asian economies overlap in the structure of export commodities, or are in the upstream and downstream of the same supply chain, and with the industrial upgrading of various countries, the trade structure is changing from division of labor and complementarity to mutual competition.
For the same product, under the depreciation of the yen, Japanese export products are cheaper than South Korea’s, and buyers will naturally “vote with their feet”, which will put huge pressure on the export of competitive products, which will lead to a sharp increase in the appreciation pressure of neighboring countries.
In 2012, Shinzo Abe re-visited Prime Minister and promoted “Abenomics”, through loose monetary policy, to promote the depreciation of the yen to promote export growth.
In order to protect the stability of their own economies and financial markets, there was a round of competitive devaluation in neighboring countries at that time. Central banks of South Korea, Indonesia, India and other countries took easing measures to promote the devaluation of their currencies.
From Abe’s inauguration in 2012 to his successful re-election in 2014, the Korean won, Indian rupee, Indonesian rupiah and Malaysian dollar continued to weaken, depreciating against the US dollar by 5.4%, 17.5%, 22.8% and 14% respectively.