In the second half of 2022, due to the continuous interest rate hikes by the United States, the Japanese yen experienced a collapse-like decline, ultimately forcing the Bank of Japan to spend up to 9 trillion yen to conduct three consecutive market interventions.
Finally, after breaking through the 151 mark, the yen rebounded strongly, preventing further collapse.
Entering 2023, with the Bank of Japan's leadership change imminent, combined with the current trend of inflation and wage increases, the Bank of Japan may launch a larger-scale counterattack.
The yen's exchange rate may experience a significant increase, potentially affecting the global financial market's trajectory.
01, Spring Offensive
Since the 1990s, Japan has been in a state of economic stagnation, resulting in stable prices and wages, which further contributed to the suboptimal economic development in the country.
However, in the labor negotiations known as the "Spring Offensive" in March of this year, there is a possibility that wages may be increased to an unprecedented level, something that has not been seen in many years.
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In the 1950s, after World War II, Japan's economy was booming, but workers received very little pay, which was meager compared to wages in other countries.
It was under these conditions that annual labor negotiations emerged, later referred to as the Spring Offensive.
In the 1970s, influenced by the oil crisis that led to rising prices, wage increases reached around thirty percent, marking the highest peak since then.Subsequently, due to prolonged deflation and economic stagnation, wages have not seen significant increases, and demands for wage increases have gradually shifted towards job security.
02, Inflation at 4%
Generally speaking, a country's continuous inflation rate maintained at 2% is beneficial for the country's development. However, Japan's domestic economy is in deflation, unable to achieve economic inflation.
Due to Japan's sluggish economy, the former Prime Minister of Japan began to continuously use policies to help businesses increase profits, thereby promoting business development, hoping to raise the salaries of employees and the people, but the implementation effects were not ideal.
The current Prime Minister has changed his approach; his "Abenomics" strategy aims to create a closed internal development loop for economic growth, corporate profits, and worker salaries.
However, in the past few years, the results have been minimal.
Now, due to the spillover of economic inflation from Europe and America, Japan's economy has finally experienced inflation, reaching 4% in January of this year, which is the highest level in 40 years.
With rising prices, companies also need to increase wages.
At the same time, Japan's aging population has led to labor shortages, and companies wanting to retain talent also need to offer more benefits.
However, due to long-standing habits, many companies, fearing costs, have been using one-time bonuses to compensate employees instead of raising base salaries.Thus, the outcome of this spring's labor disputes has significant implications for the development of various industries in Japan, and likewise, it has a substantial impact on the economy. The magnitude of wage increases affects Japan's inflation, and if well-regulated, it can create a healthy cycle conducive to Japan's economic development. Japan's inflation also influences its monetary policy and the stock and bond markets.
03, Shifting to the Chinese Yuan
Due to the recent surge in Japan's inflation to as high as 4%, this round of labor negotiations may result in a substantial increase in wages.
The long-standing stagnant wages, which have not increased for a long time, may suddenly see a significant rise, potentially further stimulating a substantial increase in Japan's prices.
Once wage increases and price increases form a mutually stimulating positive feedback loop, Japan's decades-long deflation may transform into inflation similar to that seen in Europe and America.
Therefore, the new Bank of Japan governor is likely to appropriately tighten the previously loose monetary policy, and the persistent non-interest rate hikes may also turn into appropriate interest rate increases.
This is not only a significant change for Japan but also for the global financial community. The stimulus for the appreciation of the Japanese yen could far exceed the 9 trillion yen bailout from last year.
From this perspective, the US dollar's continuous suppression of the Japanese exchange rate, with the intention of further harvesting, will undoubtedly fail.
However, for Japan, adjusting its monetary policy also faces significant risks.So, starting from the second half of last year, while Japan has been continuously selling off US Treasuries, it has also begun to consciously shift towards investing in the Chinese yuan.
Some financial institutions in Japan have reduced their holdings of US Treasuries and purchased Chinese yuan bonds, and private investors in Japan have also started to increase their investments in A-shares.
Even Japanese economists have repeatedly mentioned in their analysis that China's economy will be significantly better than that of Japan and the United States in 2023, making the reasonable allocation of Chinese assets a mainstream idea in Japan.