Currency warfare refers to a strategy in which countries gain a competitive advantage by adjusting their own currency exchange rates in international economic competition. Japan, as a defeated country, took off economically after World War II and made the United States feel threatened in the 80s. As the United States demanded that Japan sign the Plaza Accord under the pretext that the depreciation of the yen had caused an imbalance, the yen appreciated sharply, forming a huge asset bubble. However, the bubble eventually burst and plunged the Japanese economy into a nearly 30-year slump.
After nearly 30 years of development, the GDP of the United States has reached 2574 trillion US dollars, while Japan's GDP is only 423 trillion dollars, the gap with the United States is getting wider. Looking at the trend of Japan's GDP, 1995 was a high, and then experienced significant ** and fluctuations, although in 2012 it reached 6A record high of $27 trillion, but by 2022 it had fallen to 4$23 trillion, close to the lowest point in 1998.
In recent years, the Federal Reserve has continued to raise interest rates, and currencies have generally depreciated, with the yen depreciating the most significantly, with a maximum decline of more than 15%. This makes one wonder that the dollar will once again harvest the yen. However, what is surprising is that Japan, both official and non-governmental, has made a series of "god-like" operations. Despite the continued depreciation of the yen, the Bank of Japan (BOJ) did not start selling 28.5 billion US bonds until September. Even more surprisingly, September data showed that Japan's net sale of U.S. bonds reached about $20 billion. This has led people to wonder if the Japanese are more willing to cooperate with the United States and harvest other currencies together
Japan's economists recently said that the Bank of Japan will raise interest rates next year, and if Japan tightens monetary policy, coupled with the Fed having to cut interest rates, this will be Japan's best chance to fight back in a currency war. Japan has not raised interest rates, and a rate hike will have a positive impact on the yen. At the same time, if the Fed has to cut interest rates by 100 basis points, the dollar index could be rapid**, and the yen will appreciate even more against the dollar. At the moment, the outcome of whether the yen will be harvested by the dollar or killed by the dollar is about to be revealed.
From the currency wars in recent decades, it can be seen that Japan is facing many challenges and dilemmas in economic development. Although it was once the world's second-largest power, Japan's defeat in the currency war came at a huge economic cost. However, Japan is constantly trying to find a breakthrough in the hope of re-emerging in the face of an economic downturn. The current operation of the Bank of Japan and the Federal Reserve, as well as the interest rate hike, may provide Japan with an opportunity to fight back against the dollar. Regardless of the final outcome, I believe that economic development will require strategic adjustment and flexibility, and I hope that Japan will seize the opportunity to achieve economic recovery. At the same time, other countries should also learn from Japan's experience and remain vigilant and flexible in order to gain a reasonable competitive advantage in the currency war.