Japanese yen currency introduction

The printing level of Yen is relatively high. Especially in papermaking, it uses Japan's unique product "Sanya Pulp" as raw material. The paper is strict and has a unique luster, light yellow, and the larger the denomination, the darker the color. Japan is one of the countries with the fastest economic development after World War II. It currently has the world's largest import and export trade surplus and foreign exchange reserves. The yen is also one of the currencies that appreciate fastest after the war. Therefore, the position of the yen in foreign exchange transactions has become more and more critical.

The main characteristics of Japanese yen banknotes can be briefly summarized as follows:

Currency name: Japanese yen (JAPANESE YEN)

Issuing organization: Bank of Japan (NIPPON GINKO)

Currency symbol: JPY

Banknotes denominations: 500, 1000, 5000, 10,000 yuan, coinages are 1, 5, 10, 50, 100 yuan, etc.

Japanese currency characteristics

Japan has adopted the gold standard system since 1886 and issued Japanese banknotes that can be exchanged for gold coins. During the First World War, Japan abolished the gold standard system. In 1964, the Japanese yen became an international currency. After the Braden Woods system collapsed, the Japanese yen was in 1971. Implement floating exchange rates every year,

Since then, the yen has strengthened day by day, in sharp contrast with the weakness of the U.S. dollar, and has become a strong international currency.

Japan is a country with poor natural resources and a small territory. The strong impetus for economic development must come from foreign trade. Japan’s imports are high, but exports are even higher. It has a huge foreign trade surplus every year and is the third-largest import in the world. Japan’s economy has maintained a high growth rate in recent years. The average GDP growth rate from 1951 to 1973 was as high as 10.1%, ranking first among many Western countries. In 1968, Japan’s GDP reached US$142.8 billion, second only to the United States, ranked second in the world. In 1985, Japan replaced the United States as the world’s largest creditor country. Although the continued appreciation of the yen in 1985 hurt the domestic economy, industrial production quickly recovered after industrial adjustments. , The unemployment rate fell. From the end of 1991 to the beginning of 1992, Japanese financial scandals broke out, the economy began to fall, and the growth rate slowed down. At present, the Japanese economy has not fully recovered. In March 2001, the Bank of Japan resumed zero interest rates again to stimulate the economy. This report focuses on Japanese yen futures traded on CME with better liquidity.

  1. Price level

In countries with low price levels, because there is no pressure from inflation, the central bank can unscrupulously lower interest rates to stimulate the economy, and the relative exchange rate will therefore have room for further depreciation; on the contrary, if a country’s price level continues to rise, To control prices, the central bank must raise interest rates. As a result, the exchange rate will increase accordingly. Changes in the consumer price index generally determine the price changes of a country.

2. Economic prosperity

If a country’s economy grows steadily, that country's central bank does not need to lower interest rates to stimulate the economy. Its exchange rate will naturally be relatively more robust than that of countries with poor economic conditions. If a country’s economy enters a recession period, the trade deficit will expand, and interest rates will induce the central bank to stimulate the economy. The declining value of its currency may also gradually depreciate. As for whether a country’s economy is slowly recovering or is gradually declining, if the unemployment rate continues to decrease, export orders, leading indicators, and industrial production will all rebound continuously. It shows that the economy is moving from a recession to recovery.

3. Central Bank Monetary Policy

To achieve the two policy goals of stabilizing prices and promoting economic growth, central banks have long been determined about the trend of exchange rate fluctuations and the range of fluctuations they can tolerate. Suppose the exchange rate deviates from the target zone. In that case, the central bank may publicly call out or change Interest rate policy or direct market intervention, always do everything possible to bring the exchange rate back to the target area, so it is about central banks' exchange rate decision mode. Many factors affect exchange rate fluctuations; some are predictable, some are unpredictable, some are economical, and some are political. Among them, the most critical to the exchange rate are the following:

4. Trade surplus and deficit

If a country’s trade surplus continues to expand, it means that its exporters have strong export competitiveness under the exchange rate at the time. Therefore, the export and import amounts are large, and the trade surplus will continue to increase. In this way, the country’s There will be pressure for appreciation. Especially in recent years, the United States, the world's largest trade surplus country, has been using the exchange rate as a trade surplus country, demanding a bargaining chip to reduce the trade deficit, making the trade surplus one of the keys to the long-term trend of the exchange rate.

5. Interest rate trends

In the current financial environment where international funds rush, arbitrage funds often flow from regions with low interest rates to areas with high-interest rates. Significantly when a country's interest rates gradually rise, its exchange rate tends to stay high. However, it still needs to Consider the impact of changes in relative interest rates in other countries.

The early historical trend of the yen

In 1971, Japan began to implement a floating exchange rate system. In December of that year, the exchange rate was 1 U.S. dollar: 308 yen, after which the yen continued to appreciate.

In April 1995, the Japanese yen set a post-war record, 1 US dollar: 79.75 yen (the highest futures came to 1 yen: 1.2625 US cents). 1995 was a year of turbulence in the international community, with frequent emergencies. Reconstruction after the Great Western Earthquake redeemed many overseas funds; after the US-Japan auto trade negotiations broke down, the US took a stand-by attitude towards the skyrocketing yen to retaliate, and then a financial turmoil occurred in Mexico. The dumping of the US dollar and the U.S. aid to Mexico made the US dollar fall. The surge in the yen was highly detrimental to Japan’s economic recovery from the financial crisis, which affected the global economy's recovery. Germany and the Swiss National Bank jointly intervened to push the yen to 1 U.S. dollar: 104 yen (1 yen: 0.9615 US cents).

In 1998, Japan’s economic situation was the most challenging year. The economic growth rate dropped to -5.3% in the first quarter and -3.3% in the second quarter. The bad debts of banks were severe. At the same time, the Southeast Asian financial turmoil impacted Japan's overseas export markets and investment markets. The Japanese government is helpless to deal with the economic recession. Frequent economic policies have no effect. The public’s dissatisfaction triggered the downfall of Hashimoto’s cabinet. Since the end of August, the yen has rebounded sharply because of the slowdown in US economic growth and the further expansion of U.S.-Japan trade. , Causing the yen to bounce to 114.33 (the futures depreciated to 1 yen at the end of August: 0.6807 cents) in just two months.

Generally speaking, the yen will continually plummet (depreciate) during a sharp economic recession, and it is highly vulnerable to financial turmoil in Asia and the rest of the world. However, the appreciation of the yen is often not related to economic fundamentals. Usually, when the yen appreciates, The Japanese economy is not ideal. It is often just out of the bottom, and the yen has appreciated by a large margin, usually rising more than 10% at a time. This is closely related to the characteristics of the Japanese economy and the international currency market. In addition, after some time after each fluctuation in Japan, it will generally return to around 1:120 yen (about 1 yen: 0.83 cents), mainly because of the economic power comparison of Japan, the United States, and other major European countries, which has not occurred since the 1980s. Noticeable changes, so in the medium term, after the yen fluctuates for some time, it will usually return to the long-term equilibrium price.

Factors affecting the yen

Ministry of Finance (MOF): The Ministry of Finance of Japan is the only department that formulates fiscal and monetary policies in Japan. The Japanese Ministry of Finance has more influence on the currency than the US, UK, or German Ministry of Finance. Officials of the Japanese Ministry of Finance often release some remarks on economic conditions. These remarks generally affect the yen. For example, when the yen rises or depreciates that does not meet the fundamentals, the Ministry of Finance officials will intervene verbally.

Bank of Japan (BoJ): The Bank of Japan. In 1998, the Japanese government passed a new law allowing the central bank to independently formulate monetary policy without government influence, while the yen exchange rate is still under the responsibility of the Ministry of Finance.

Interest Rates: Interest rates. The overnight lending rate is the primary short-term interbank interest rate and is determined by the BOJ. BOJ also uses this interest rate to express changes in monetary policy, which is one of the main factors affecting the yen exchange rate.

Japanese Government Bonds (JGBs): Japanese government bonds. To enhance the liquidity of the currency system, BOJ buys 10-year or 20-year JGBs every month. The yield of the 10-year JGB is regarded as the benchmark indicator of long-term interest rates. For example, the primary difference between the 10-year JGB and the 10-year U.S. Treasury bill is considered to be one of the factors driving the trend of USD/JPY interest rates. A fall in the price of JGB (that is, an increase in yield) is usually positive for the yen.

Economic and Fiscal Policy Agency: Economic and Fiscal Policy Agency. It officially replaced the original Economic Planning Agency (EPA) on January 6, 2001. Responsibilities include elaborating economic plans and coordinating economic policies, including employment, international trade, and foreign exchange rates.

Ministry of International Trade and Industry (MITI): The Ministry of International Trade and Industry is responsible for guiding the development of Japan’s domestic industry and maintaining the international competitiveness of Japanese companies. However, its importance has greatly diminished compared to the 1980s and early 1990s, when the trade volume between Japan and the United States would dominate the foreign exchange market.

Economic Data: Economic data. The more important economic data include GDP, Tankan survey (quarterly business conditions and expectations), international trade, unemployment rate, industrial production, and money supply (M2+CDs).

Nikkei-225: Nikkei 255 index. Japan's main stock market index. When Japan’s exchange rate is lowered reasonably, the export-oriented stock prices will increase. At the same time, the entire Nikkei index will also rise. Sometimes, this is not the case. When the stock market is strong, foreign investors will be attracted to use the yen to invest in the Japanese stock market, and the yen exchange rate will also be pushed up.

Cross Rate Effect: The effect of the cross rate. For example, when the EUR/JPY rises, it will also cause the USD/JPY to rise. The reason may not be the rise in the US dollar exchange rate but the different economic expectations for Japan and Europe.