- 2024-07-25
- News
US stock market drops sharply, Japanese yen rises sharply!
Recently, there has been a significant event in the international financial markets: the US dollar has suddenly lost its luster. By "lost its luster," I don't mean that the credit of the US dollar has collapsed, but rather that its strength against other currencies is no longer dominant.
On July 24th, the offshore Chinese yuan appreciated by 0.32%, and on July 25th, it continued to rise by 0.33%. More dramatically, on July 25th, the yuan exchange rate broke through six thresholds of 7.26, 7.25, 7.24, 7.23, 7.22, and 7.21 in one day, almost breaking the psychological barrier of 7.2.
However, if you think the Chinese yuan is the most attractive currency, you would be mistaken. The currency of another Asian country has performed even more impressively. The Japanese yen has staged a dramatic turnaround, rising from 161 to 151 against the US dollar in just 11 trading days, appreciating nearly 7%.
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Could it be that Japan has intervened? Considering Japan's foreign exchange reserves and the current global situation, the Bank of Japan clearly does not have the capability and confidence to let the yen appreciate so much.
Therefore, the only possibility is that the US dollar's weakness has led to some hot money flowing out, buying Asian currency assets such as the yen and the Chinese yuan.
At the same time, the Nasdaq index, which represents the most advanced productive forces and the most important elements in the US economy, has experienced a significant plunge.
Led by the "Tech Seven Sisters," the Nasdaq index reached its historical peak of 18,671.07 points on July 11th, then turned downward, with the largest intraday drop reaching an astonishing 2.32%.
In the following trading days, the Nasdaq index continued to decline, and by the close on July 25th, it had fallen by a cumulative 8%.
Interestingly, the appreciation of the yen in this round, or the depreciation of the US dollar, began on July 11th. The adjustment of the Nasdaq index also started on July 11th, with the former falling by 1.63% and the latter by 1.95%, showing a synchronized trend.
As everyone knows, since 2024, the yen has been the weakest among major currencies, overwhelmed by the US dollar.In the past six months, aside from the Japanese yen appreciating by 0.3% against the US dollar in May, the remaining five months have seen a "total collapse," with depreciations of 4.16%, 2.09%, 0.91%, 4.27%, and 2.26% respectively.
It's important to understand that this is the trend of exchange rates, not stock prices. In the foreign exchange market, a fluctuation of more than 1% in a month is considered significant. For example, the Chinese yuan, which is considered relatively stable, did not experience any monthly exchange rate changes exceeding 1% against the US dollar in the first half of this year. Astonishingly, the yen depreciated by more than 2% in four months, with January and April seeing depreciations of over 4%.
Japan has also become the largest economy that the US has most wanted to harvest since it initiated this round of interest rate cuts and hikes. Bloodthirsty capital has made a significant profit from the yen.
However, in the last ten days or so, the situation has reversed. The yen has begun a "counteroffensive," leading Asian currencies to catch the US dollar off guard. What has happened?
The problem lies with the US itself, related to the US stock market. The Bank of Japan has long maintained low interest rates, even negative rates. The cost of borrowing yen is very low, so a large number of investors borrow low-interest yen from Japanese banks, exchange them into dollars or euros, and then purchase overseas assets. Stocks of US technology companies listed on the NASDAQ are the main investment assets.
When the stock prices of tech giants fall, and holders see that they can no longer make money, they immediately sell their stocks and exchange the cashed-out dollars back into yen to repay Japanese banks.
As a result, the market has seen a phenomenon of selling dollars and buying yen, with the latter appreciating as a result.
From a certain perspective, the recent significant appreciation of the yen can be understood as international hot money running back to Japan to save the yen. Although the original intention of these funds was not to raise the exchange rate of the yen, their profit-seeking behavior indirectly led to an increase in demand for yen, allowing the yen, which was in a depreciation channel, to catch its breath.
The Japanese government has therefore breathed a sigh of relief and can now confidently say to the Americans, "Look, it's not our central bank intervening in the foreign exchange market; it's your own stock market that's not performing well. Hot money is actively flowing back to the yen, and there is no deliberate intention to oppose you."
The Americans think about it and realize it seems to be true. They can't get angry with Japan and can only swallow their pride and keep their complaints to themselves. If they must blame someone, it's their own private capital that lacks a sense of the bigger picture and focuses only on short-term gains.In fact, this is just the beginning, with tougher times ahead for the United States and the strong dollar era about to come to an end.
In June, the growth rate of consumption data, which the U.S. economy heavily relies on, slowed down, and U.S. inflation also eased. These two "slowdowns" point to the same goal, which is that the Federal Reserve is about to start cutting interest rates.
The market has bet that the probability of the United States cutting interest rates in September is close to 100%, and the Federal Reserve may cut interest rates 2-3 times within the year. After the narrowing of interest rate differentials, the attractiveness of the dollar will decrease, and the exchange rates of various countries will rise.
Many people have already forgotten the situation when U.S. interest rates were low in 2022, so let me review it for everyone.
In March 2022, the Federal Reserve raised interest rates for the first time, and the previous month, the offshore yuan rose to a maximum of 6.3, while the yen against the dollar was below 120.
With the strong market expectation that the Federal Reserve is about to start an interest rate cutting cycle, the global financial market is facing a new round of turmoil and adjustment.
Looking back at history, whenever the dollar enters an interest rate cutting cycle, it is often accompanied by capital outflows from dollar assets in search of higher-yielding safe havens.
The significant appreciation of Asian currencies this time is a vivid reflection of this trend, which not only eases the depreciation pressure faced by the currencies of these countries but also injects a strong stimulant into their economies.
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