The currency collapse has turned out to be the price Japan is now paying for years of insane monetary policies.
Written by Wolf Richter for WOLF STREET.
Today, the yen fell to 154.7 yen to the US dollar, its lowest level in 34 years, despite endless copy-and-paste operations by Japanese authorities and some market interventions – selling hard-earned dollars to buy back yen created by a bank. Japan at a time like this. Reckless abandon – to support the yen.
The yen has fallen 32% against the US dollar since 2021 when other central banks began to move away from quantitative easing and 0% or negative interest rates; It has collapsed by 50% since 2012 when newly elected Prime Minister Shinzo Abe implemented his economic policies (“Abenomics”) of financial profligacy financed by money printing, and massive amounts of money printing that was reinforced in 2016 by the Curve Control Corporation. The return. , which kept the 10-year bond yield near 0%.
The Bank of Japan has taught global central banks a huge lesson over the past twelve years: you can get away with printing endless amounts of money, no problem – see how we do it? – Buy more than half of the national debt in the newly created yen, plus a bunch of other securities, and there won't be any bad consequences. Now that lesson turns out to be false. The yen is collapsing. There is a price to pay after all: the destruction of the currency:
The only surprising thing is how long these kinds of crazy monetary policies can be maintained before something collapses, but then something collapses, something big, like a currency. It turns out that the free lunch theory behind all this was fake.
The Bank of Japan has begun to respond in small steps, but there is nothing in these small steps that will stop the destruction of the yen – it is still destroying the yen, but in slightly smaller increments.
The process began in December 2022, by which time other central banks were raising interest rates in large increments and switched to the QT policy. That was when the Bank of Japan “shocked” the markets by raising the ceiling of the yield range on 10-year Japanese government bonds to 0.5%. In 2023, it raised the ceiling to 1%. In October 2023, it got rid of this explicit cap. Then at a policy meeting in March, the Bank of Japan said:
- The bank maintained quantitative easing and said it would “continue its purchases of Japanese government bonds in the same amount as before,” about 6 trillion yen per month ($40 billion), based on market conditions.
- He reversed his negative interest rate policies by raising the short-term interest rate by 10 basis points, oh my goodness, from -0.1% to 0.0%, the first rate hike since 2007.
- Kind of controlling the ending yield curve but without getting rid of it completely.
- It officially ended its purchases of stock ETFs and J-REITs, though it will stop buying them in 2023.
- It has slowed but not stopped purchases of corporate paper and corporate bonds, and has said it will end them entirely in about a year.
So, the Bank of Japan has only taken a few small steps to move away from its crazy monetary policies, but it is still largely stuck in those policies, and is still following them, but at a slower pace. Destruction of currency in action.
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