01, Crisis Averted

For Japan, the largest financial crisis has suddenly and inexplicably vanished. On Thursday, the yen's exchange rate rose to 140, and on Friday it further increased, returning to 138.

This exchange rate level has returned to the end of August, and if we are strict about it, the earliest time this year when the yen's depreciation against the US dollar first broke through 138 was on July 14th.

That is to say, the current yen exchange rate has actually risen to the level of July 14th this year, returning nearly four months back in time.

02, Japan's Market Intervention

Over this period, the continuous depreciation of the yen has been a great concern for the Bank of Japan.

Faced with the continuous interest rate hikes by the US dollar, most countries have used the method of following the US dollar's interest rate hikes to avoid depreciation, trying to maintain or reduce the interest rate gap with the US dollar.

The UK, the European Central Bank, Canada, Australia, and other countries and regions have used this method. Although it cannot completely avoid the depreciation of the local currency, at least it is not as severe as the yen's annual depreciation of up to 30%.

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However, interest rate hikes are completely contrary to Japan's long-standing easy monetary policy. Therefore, Japan has consistently refrained from raising interest rates and has maintained a loose monetary policy.

This has led to another issue: the huge difference between Japan's zero interest rates and the US's current interest rates close to 4% has caused funds that were originally in Japan to sell yen and buy US dollars, further depressing the yen's exchange rate. After breaking through 140, it broke through 145, and then it even broke through 150.The Bank of Japan had to intervene in the market twice, but even so, the effect of the intervention was not very good.

In late September, after the yen exchange rate broke through 145, the Bank of Japan spent nearly 20 billion US dollars to intervene in the exchange rate, pulling the exchange rate back to 140 in a short time, but then it continued to depreciate, and in October, it not only broke through 145 again, but also broke through 150.

With no other choice, the Bank of Japan intervened again, pushing the exchange rate back up to 145, but by the end of October, it depreciated again.

It seems that Japan's market intervention is about to fail.

03, the US dollar was frustrated

But unexpectedly, it was the US dollar itself that defeated the US dollar in the end.

Last week, the United States announced inflation data that was lower than expected, causing the US dollar index to fall rapidly. The highest point on Thursday was 111, and by the end of the week on Friday, it fell to 106.4. The decline of the US dollar index made the yen easily continue to rise back to 138.

It seems that the US dollar's attempt to drag the yen exchange rate into the mud through continuous interest rate hikes has temporarily failed.

However, it is clear that Japan has not relaxed because of this, and is even preparing for a counterattack.

Because what can be expected is that in the future, the US dollar will continue to raise interest rates, and the interest rate difference between the yen and the US dollar will further expand.So, there is still a possibility for the Japanese yen to depreciate. In order to reserve the US dollars needed for future market bailouts, Japan will continue to sell a large amount of US Treasury bonds.

Some analysts have calculated that if the final interest rate of the US dollar falls to the range of 5%, Japan may still need five to six bailouts. Therefore, it is expected that Japan will continue to sell at least 25 billion US dollars of US Treasury bonds on the current basis.