Recently, the monetary policy moves of the Bank of Japan and the Federal Reserve have triggered sharp fluctuations in the foreign exchange market, and the RMB exchange rate has also been affected. As investors, of course, we need to understand the impact of these changes on the renminbi so that we can formulate appropriate strategies to deal with them. Today, let's unveil this mystery and see what opportunities and challenges the RMB is facing.
Japan recently signaled that it will raise interest rates in March, ending the five-year era of negative interest rates According to the latest news, the Bank of Japan has released a bombshell signal - it may raise interest rates at its March policy meeting, ending the negative interest rate policy that has been continuing since 2016. Let's start by looking at why Japan has made such a major policy shift.
In fact, Japan has been sticking to a loose monetary policy for many years, with the aim of getting rid of the smog and stimulating economic growth. But just recently, Japan's inflation rate has soared to its highest level in 40 years, well above the BOJ's 2% target ceiling. In addition, the Japanese economy has finally begun to recover, and the job market continues to improve. These changes have undoubtedly put pressure on the Bank of Japan to raise interest rates. In addition, the negative interest rate policy has brought many distortions to the domestic market, such as suppressing banking earnings and exacerbating asset bubbles. In the long run, Japan's banking and financial system may not be sustainable. Therefore, it is imperative to end the negative interest rate policy.
This policy shift in Japan will undoubtedly lead to a sharp appreciation of the yen. Once the yen appreciates, countries with large amounts of yen-denominated debt will be hit hard, and in order to repay their debts, they will have to sell their currencies in large quantities for yen, which will undoubtedly put depreciation pressure on many currencies, including the renminbi.
For example, there are currently as many as 28 trillion yen of bond hedges** positions, and once the yen appreciates, these ** may sell about 22 trillion yuan and other currencies. It can be seen that the RMB exchange rate market will suffer a great impact.
Not only that, but Japanese companies are also located all over the world, and once the yen appreciates, these companies will undoubtedly repatriate overseas profits to Japan, forming a new flow of capital, which in turn will further push the yen up, forming a chain reaction to currencies such as the yuan.
In addition, as the world's third largest economy, Japan's monetary policy change is tantamount to dropping a bombshell, which will affect global capital flows and asset allocation, trigger large-scale capital flight to emerging markets, and bring new downward pressure on the RMB.
In particular, Japan is also the world's largest creditor, with a debt of 1,300 trillion yen, or about $12 trillion. More than 80% of such a large debt is denominated in yen. Once the yen appreciates, Japan's debt costs will soar, which will greatly exacerbate Japan's debt crisis and even trigger greater financial turmoil, which will have a shock wave on global currency markets, including the renminbi.
Contrary to the Bank of Japan's course is the Fed's recent signal of a steady wait-and-see and slowdown in interest rate hikes. The market widely expects the Fed to cut interest rates by a modest 50 basis points this year.
This signal will undoubtedly put pressure on the dollar index and ease the depreciation pressure on emerging market currencies such as the yuan. However, it is also important to note that the huge impact of the BOJ's rate hike may be enough to offset the positive effect of the Fed's rate cut, and even if the Fed does cut interest rates, it cannot hide the fact that the US economic fundamentals are deteriorating. Once the U.S. economy really enters a recession, international capital may not be willing to chase the dollar, but may accelerate the withdrawal from the U.S. market, which will put pressure on the U.S. dollar again and impact currencies such as the yuan.
How China is dealing with the pressure on the renminbi exchange rate.
Based on the above analysis, it can be seen that the Bank of Japan's interest rate hike has indeed had a serious adverse impact on the RMB exchange rate market, but the Fed's easing policy may offset it to a certain extent. In any case, China should take precautions, assess the situation, and formulate strong countermeasures.
First, the internationalization of the renminbi should be accelerated. Once the renminbi is more widely used globally, its exchange rate will be more determined by market supply and demand, and the impact on external factors will be reduced.
Second, we need to enhance the international attractiveness of the renminbi and encourage more foreign capital inflows to support the expectation of renminbi appreciation. Consideration can be given to appropriately opening up the financial market to the outside world, further improving foreign exchange management laws and regulations, and creating a more favorable environment for foreign capital to enter the market.
Third, it is necessary to carefully assess the timing and intensity of central bank intervention. When the renminbi is facing greater depreciation pressure, foreign exchange reserves should be appropriately used"Firepower"It is of paramount importance to maintain the basic stability of the exchange rate. But also pay attention to cost control to avoid missing opportunities.
In addition, we need to improve our enterprise risk management capabilities. For companies with a large number of assets and debts denominated in yen, or transactions involving yen, the exchange rate risk will also increase dramatically, and it is necessary to strengthen countermeasures.
Finally, it is necessary to guide domestic investors to establish a long-term and rational investment philosophy. Some investors may panic excessively because of short-term exchange rate fluctuations, and industry authorities should speak out in a timely manner to maintain stability.
In short, the divergence of monetary policy between the Japanese and US central banks has undoubtedly put the RMB in a predicament full of uncertainties. However, as long as we take it calmly, I believe that the RMB is fully capable of passing this hurdle and remaining invincible in the future exchange rate game. Opportunities and challenges coexist, and we look forward to China's wise decision-making to escort the stable development of the country's economy!