It is also difficult to restore trust in Japan's intervention in the devaluation of the yen

It is also difficult to restore trust in Japan’s intervention in the devaluation of the yen

By purchasing yen and selling dollars, the Japanese government and the Bank of Japan (Central Bank) intervened in the exchange rate, ushering in a new era for Japan’s currency defense. However, low interest rates in Japan remain unchanged, and people there continue to invest their money abroad. The asset-forming generation in Japan, those aged 20 to 49, have a deep mistrust of the yen and the Japanese economy. Can the yen’s value be temporarily propped up by intervention? A sense of confidence in the market remains elusive.

A man in his thirties who runs a restaurant in Tokyo wasn’t surprised when he saw the news that the exchange rate of the Japanese yen against the US dollar fell into the range of 145 yen per US dollar on the afternoon of September 22. As expected, the yen. I plan to go buy some dollars if the yen continues to rise in value.

The restaurant owner even admitted, “I bought a fair amount of dollars” in August, when the yen was around 130 to the dollar. The coronavirus pandemic serves as a backdrop to the yen’s anxiety. When asked about his company’s continued success despite receiving government subsidies, he said, “The repeated spending by the government has made people worry about whether (Japan’s) national finance and currency can bear it.”

A second male worker in his forties at the company put away a similar percentage of his monthly salary in foreign equity investment trusts. “About 30% of my holdings are in foreign currency,” he said. I plan on adding to it, so even if the government intervenes by purchasing Japanese yen, I will keep buying more foreign currency.

Seeing the yen and the Japanese economy weaken has been a huge letdown for me. The new “iPhone 14 Pro” from Apple starts at 149,800 yen in Japan (tax included, about 7,473.5 yuan). It’s a jump of over 20,000 yen from when the previous model “iPhone13 Pro” was released. The falling value of the yen was blamed by frustrated fans.

Despite popular belief, the “Big Mac index” accurately depicts the decline in Japanese purchasing power. The most recent price in July was $5.15 USD (roughly 730 JPY) and $3.90 JPY in Japan, as reported by the British magazine The Economist. In the US, the price of a burger is nearly double that of its Canadian counterpart.

Traveling abroad has become more expensive and more cumbersome for Japanese people as a result of the yen’s decline, rising prices in countries other than Japan, and actual rising air freight rates. Asset formation will be affected, as noted by Daisuke Tang Kamama of Mizuho Bank: “[Japanese] citizens are easily influenced by the common idea of ‘becoming poor because of the depreciation of the yen.

Over the past two decades, Japanese families have steadily increased their holdings of foreign currency. Foreign portfolio investment in household assets rose from 9.4 trillion yen in 2002 to 22.3 trillion yen at the end of June 2022, while foreign investment trusts rose from 5.7 trillion yen to 34.9 trillion yen during the same time period. Mizuho Bank has derived these projections from data provided by the Bank of Japan (Central Bank).

At the end of June, the total value of yen deposits was close to 1,100 trillion yen, representing more than half of all Japanese households’ assets. However, only 10% of FX assets will generate sales of more than 100 trillion yen. The size is similar to Japan’s foreign exchange reserves, which are used for foreign exchange intervention.

There are high hopes that the yen will lose value. “started buying foreign equity investment trusts this year, but without currency hedging,” one of the company’s male employees said. Almost all new money is going into foreign equity investment trusts “without currency hedges,” as reported by Mitsubishi Asset Brains.

Consensus is growing that a recession in the United States will be challenging to avoid, and the depreciation of the yen could usher in a period of adjustment. But if people keep shifting their spending abroad, the yen will be under severe selling pressure.

It’s possible that this trend won’t be reversed even if the Japanese government and central bank intervene in the exchange rate by buying yen or by shifting financial policy toward easing. If the government only makes minor adjustments and does nothing to allay people’s fears about Japan’s future, the country may continue to struggle with the yen’s depreciation for a long time.

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