The United States and Japan have long had an inseparable economic relationship. Forty years ago, in 1985, Japan's economy was growing rapidly, and its GDP had reached 555 trillion dollars, only 7$64 trillion is about $2,000 billion lower.
With Japan's booming economic growth at the time, many expected it to soon overtake the United States as the world's largest economy. However, 30 years later, the GDP gap between the United States and Japan has not narrowed, but has widened to a staggering 21$51 trillion.
In 2022, the GDP of the United States has reached 2574 trillion dollars, while Japan has only 4$23 trillion, less than one-fifth of the United States. This striking change in contrast is inextricably linked to the currency war launched by the United States 40 years ago.
The historical curve of Japan's GDP growth can clearly reflect the changes at key nodes. Japan's GDP reached a high point in 1995 and then continued to decline, falling below 4 in 1998$1 trillion.
After years of volatility, it finally crossed the $6 trillion mark again in 2012 to reach 6An all-time high of $27 trillion, but it soon began to decline again until it fell below 4 again in 2022$2 trillion, only slightly higher than the 1998 low.
This up-and-down curve was largely caused by the bursting of a rapidly inflating asset bubble in the early 1990s, when Japan experienced a property market and a double crash, kicking off a 30-year economic downturn.
Specifically, in the 80s of the 20th century, Japan's rapid economic growth made the United States feel great pressure. In order to suppress Japan, the United States forced Japan to sign the Plaza Accord, which led to a sharp appreciation of the yen.
The appreciation of the yen has brought about a rapid increase in various assets, forming a huge bubble. After the bubble burst in the 90s, Japan's economy fell into a downturn, and it is still difficult to completely come out of the shadows.
Since the beginning of the 21st century, the yen exchange rate has continued to make new waves. In 2022, against the backdrop of the Federal Reserve's continuous interest rate hikes, the yen exchange rate depreciated sharply, with the highest exchange rate against the US dollar exceeding 15%, falling below the 151 mark.
It stands to reason that in this case, the Bank of Japan should support the local currency exchange rate by means of U.S. bonds, but surprisingly, from June to September, the Bank of Japan had a large number of U.S. bonds for three consecutive months.
In September, the Bank of Japan finally came to its senses and began selling $28.5 billion in bonds. But what is even more surprising is that in September, Japan's net further U.S. debt also reached $20 billion. This seems to indicate that both the Bank of Japan and the private sector are more inclined to cooperate with the appreciation of the dollar to reap.
Japanese economists** said that the Bank of Japan will start raising interest rates in 2023. If Japan tightens monetary policy and raises interest rates, and the Fed is forced to cut interest rates, it will have a major impact on the US-Japan currency war.
Japan's rate hike itself is a boon for the yen, and combined with the Fed's 100 basis point rate cut, it could quickly weigh on the dollar index. At this point, the yen will appreciate very much against the dollar.
In other words, the yen is likely to succeed in countering the dollar in the new year. The currency war between the United States and Japan, which began 40 years ago, has officially entered the final decisive stage.
Can Japan's economy succeed in turning around and regaining its former glory?In which direction will the yen exchange rate eventually break through?Let's wait and see!