The Japanese foreign exchange market experienced a shake-up this morning on its first day of trading this week. The government decided to change the agreement with the central bank regarding the inflation target and this decision shook its central currency.
The yen began to rise by more than half a percent, fell and rose again to a level of about half a percent. As of noon, it was trading at 136.06 yen per dollar. Overall, the yen has fallen 16% against the dollar since January 1.
But the goal of the Japanese government, at least according to the reports, is to change the inflation target of 2% and adopt a different policy in the context of the interest rate, which for many years was close to zero. In a joint statement with the central bank, it seemed that the change would be made soon. But even so, Prime Minister Fumio Kishida has not yet begun containment measures.
Unlike many countries that suffer from severe inflation, Japan has suffered from deflation – the opposite of inflation that brings with it weak growth. The Japanese economy is “suffering” from an aging population. They do not often have children, which hinders the natural growth of the population. Labor productivity in the country is also low and this is due, among other things, to the aging average age of the population.
So what actually happened to the Japanese Lin? The interest rate was zero and the currency weakened. When all over the world bond yields rise due to interest rate hikes, the Japanese government suppresses yields because interest rates are low. The Japanese are in no rush to buy bonds with an almost zero interest rate of a quarter of a percent, certainly not when they see the United States raising bond interest rates for long periods to 3.5-4 percent. Maybe now it will change?
Inflation in Japan reached 3.7% this year – a record of just over 41 years. This is the main reason why the Japanese want to change the target as well as raise the interest rate. This is the reason that finally made investors change their thinking habits about trading between.
Will inflation go down and interest rates go up soon? In the meantime, the Japanese are waiting for the Prime Minister to say something. If interest rates rise, inflation will return to a more sane level. At least in relation to what is known in Japan.
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