Source: Gelonghui

On the first anniversary of taking office as Bank of Japan Governor, Kazuo Ueda said he had achieved the goals he had set when he first took the helm.

That is to turn the central bank's complex monetary stimulus measures into a simpler framework.

However, these remarks seem to have had little effect on the yen exchange rate, and the exchange rate of the yen against the US dollar is still far below the decades-low hit last week.

On Monday, the yen weakened, and the dollar fluctuated and rose against the yen. It has now risen nearly 0.06% to 151.785 yen. Traders are still wary of possible intervention by the Japanese authorities.

Japanese stocks, on the other hand, rebounded collectively from last week. The Nikkei 225 Index closed up 1.3% to 39517.81 points in early trading; the Eastern Stock Exchange Index rose 1.2% to 2735.20 points.

Ueda Kazuo's first anniversary

On April 9 of last year, Kazuo Ueda became the governor of the Bank of Japan. Tomorrow he will complete his first year in office.

During the year, Kazuo Ueda began canceling his predecessor's large-scale stimulus plan, abolished dovish forward-looking guidance, and gradually lifted the Bank of Japan's controversial bond yield controls by the end of 2023.

Regarding his feelings on the first anniversary of his tenure as governor, he said that the hopes of the previous fiscal year have been realized to a certain extent, and he will respond appropriately to changes in the situation in the future.

On April 8, in response to a question in the Diet, Kazuo Ueda stated that making the monetary policy framework simpler and easier to understand was one of his goals when he took over the bank in April last year.

“When I took office a year ago, I felt that the Bank of Japan's policy framework had become technically difficult due to various reasons. If the economy allows, I wanted to make the framework simpler and easier to understand.”

Thankfully, the economy was doing quite well in the last fiscal year (ending March), so I was able to complete my mission.

In March of this year, the Bank of Japan ended eight years of negative interest rates and achieved a historic transformation.

Currently, the Bank of Japan has set a single short-term interest rate target in the range of 0-0.1%.

However, even after the Bank of Japan ended eight years of negative interest rates, the yen is currently on a downward trend because dovish signals suggest that further rate hikes may be postponed.

In addition, weak wage data in Japan continues to weigh on the yen.

Japan's Ministry of Health, Labor, and Welfare reported that the inflation-adjusted real wages of Japanese workers fell 1.3% year on year in February, compared to 1.1% after the previous month's revised decline.

According to data released by Japan's Ministry of Finance, Japan's current account increased to 2.64 trillion yen in February, the highest level since October last year, but it is still lower than the general expectations of the market.

As the dollar nears a 34-year high against the yen, the market is wary of potential Japanese intervention.

Earlier, Japan's Finance Minister Shunichi Suzuki said he was prepared to crack down on speculators, hinting at possible intervention in the purchase of yen.

Suzuki said that various factors are driving currency trends, such as the Bank of Japan's decision to end negative interest rates, Japan's current account balance, price changes, geopolitical risks, and market participants' sentiment and speculative trading.

“As for the recent decline in yen, we believe that considering domestic and foreign economic and price developments, there are speculative trends that do not reflect fundamentals.”

On Friday, Ueda said that the Bank of Japan's position since deciding to abandon the negative interest rate policy in March is to “let the market determine long-term interest rate trends.”

He pointed out that the Bank of Japan does not “directly target” the foreign exchange market when guiding monetary policy, but emphasized that the market is one of the “key factors” affecting the development of economic prices. The importance of changes in the foreign exchange market will prompt the government to work closely with the Bank of Japan to jointly monitor these changes and their impact on the economy and prices.

Also, speculations about changes in “domestic and foreign” monetary policy will affect foreign exchange trends.

JPY short bets are still increasing

Currently, the yen continues to weaken, and 152 is a key point.

Japan's former chief monetary diplomat Tatsuo Yamazaki said that if the exchange rate of yen against the US dollar falls far below 152, the Japanese authorities may interfere in the currency market.

Once the dollar rises above 152 yen, intervention measures may be taken to prevent an acceleration of the increase, which could put the authorities' credibility at risk if left unattended.

He believes that the recent depiction of the yen's decline was driven by “speculation”, which indicates that the authorities are seriously considering whether to intervene.

Judging from the influencing factors, in addition to the delay in Japan's interest rate hike expectations, the Federal Reserve's next move will also have a big impact.

Nicholas Chia, an Asian macro strategist at Standard Chartered Bank, said that the yen will be easily affected by the sharp strengthening of the US CPI report, and “intervention remarks may be put back on the agenda.”

Last week, America's optimistic US non-farm payrolls data stimulated the strengthening of the US dollar and pushed the USD/JPY back to a decades-long high.

The blowout non-farm payrolls data report suggests that the Federal Reserve may delay interest rate cuts and force investors to cut interest rates three times in 2024.

Market analysts said that since the Bank of Japan's policy interest rate remains near zero, the interest rate gap between the US and Japan is expected to remain large, which gives traders an excuse to continue selling yen.

Despite repeated stern warnings from the Japanese authorities about the weakening yen, short bets are still increasing.

According to the latest data from the US Commodity Futures Trading Commission, the number of yen net short contracts held by leveraged funds and asset management companies increased to 148,388 contracts in the week ending April 2, the highest level since January 2007.

Marito Ueda, head of SBI's Liquidity Market Research Department, said that there is room for further depreciation of the yen.

“I don't think economic indicators or even statements from Bank of Japan officials are enough to make them buyers of yen.” “The yen sell-off may increase a bit, but this may clash with the timing of the intervention of the Japanese monetary authorities.