Due to the difference in the direction of monetary policy between the central banks in Europe and the United States, which are rushing to tighten monetary policy, and the Bank of Japan, which maintains large-scale monetary easing, the yen continued to be easy to sell in the foreign exchange market this week.
Against this backdrop, what attracted the attention of market players this week was the reference to the recession of US Federal Reserve Chairman Powell at midnight Japan time.
Market officials and financial officials are becoming more cautious about the sneaking risk of a recession in the United States.
(Reporter of the Ministry of Economic Affairs, Meiji University)
Yen depreciation progresses to the level for the first time in about 24 years
In the early morning of the 21st, the yen exchange rate was 136.71 yen per dollar in the foreign exchange market, the lowest level in about 24 years since September 1998.
Last week, the US Fed decided to raise rates significantly by 0.75%, and the Swiss central bank also decided to raise surprise rates for the first time in 15 years, while the Bank of Japan decided to maintain its current large-scale monetary easing policy. rice field.
As the difference in the direction of monetary policy with Europe and the United States became clear, the yen was bought with a higher yield due to the widening interest rate differential between Japan and the United States, and the yen depreciated by about 2 yen from Monday after the beginning of the week. I proceeded.
Fed Chair Powell makes an unusual "potential recession" statement
Under these circumstances, it was the testimony of Chairman Powell in the US Senate that attracted the attention of market participants on the 22nd.
At a hearing attended to explain the direction of the Fed's monetary policy, which has taken a major rate hike, Chair Powell was asked about the possibility of a recession in the United States due to a rapid rate hike, saying:
Fed Chair Powell
"There is certainly a possibility of a recession due to a rate hike. The Fed does not intend to cause a recession, but it is absolutely necessary to restore price stability. We aim for a soft landing. It's very difficult. ”
Many market players were surprised to take this statement.
Market officials
"Executives and economists at major U.S. banks have pointed out the possibility of a recession in the United States from next year onward, but the Fed's chairman, Powell, may have a recession due to a rate hike. It's surprising to mention clearly that the US economy is currently strong, but it's significant that the Fed is aware that the rapid rate hike could go beyond a recession. "
There are also concerns about the cooling of personal consumption
In fact, there are concerns that personal consumption will cool down due to rising interest rates.
The 30-year fixed rate as of 15th of this month, announced by the government-affiliated housing finance institution Freddie Mac, averaged 5.78%, up 0.55 points from the previous week.
Compared to August last year (2.77%), which was the lowest in the past year, it is up by 3 points.
Consumers in the United States also buy furniture when they buy a home, so there is a growing sense of caution that a sharp rise in mortgage rates may lead to a decline in personal consumption.
In the US bond market following the congressional testimony of Chair Powell, bonds were bought due to concerns about the future of the economy, and the yield of 10-year US government bonds, which is an indicator of long-term interest rates, fell from 3.28% to 3.16%.
In the New York Stock Exchange, the Dow Jones Industrial Average, the Nasdaq Composite Index, and the S & P 500's three major indexes all fell.
The yen exchange rate, which reached a depreciation level of 136.71 yen to the dollar for the first time in about 24 years, returned to the low 135 yen level per dollar on the 21st.
What is the impact on the Japanese economy?
What impact will Japan's financial markets have if the United States enters a recession?
Market officials
"In the short term, the interest rate differential between Japan and the United States is expected to widen and the yen's depreciation is expected to intensify, but if the United States enters a full-scale recession, the pace of interest rate hikes by the Fed will slow down. A slowdown or a reduction in interest rate hikes could lead to a stronger yen. If personal consumption weakens in the United States, which is also the main export destination of the Japanese economy, domestic production in the manufacturing industry will increase. The
risk of a downturn will increase, which will affect stock prices, "
while the Fed is wary of the possibility of a recession in the United States.
FSA executives have expressed their willingness to keep an eye on the credit risk of financial institutions, which is rising due to the plunge in stock prices.
Financial Services Agency executive
"At the same time as the management risk of small and medium-sized enterprises is increasing due to high raw material prices and high prices, the risk of regional banks failing in securities management is increasing. Foreign bonds swelled by rising interest rates in the strong Japanese and US stock markets However, if the US recession gets into full swing, it is necessary to check the credit risks of regional banks more carefully.
" Parliamentary testimony.
With both inflation control and the risk of a recession in mind, the US Fed is under pressure to steer difficult monetary policy.
Since the impact may affect the Japanese financial markets and economy, it seems necessary to pay attention to the trends.
Scheduled to pay attention
On the 27th, the main opinions of the Bank of Japan's monetary policy meeting in June will be announced.
It will be interesting to see what kind of discussions were held at the meeting by the Bank of Japan, which decided to maintain monetary easing as the central banks of Europe and the United States decided to raise interest rates one after another and the yen depreciated.
On the 1st, the Bank of Japan's Tankan = Corporate Short-term Economic Observation Survey will be announced.
It is worth noting how much the business sentiment of the non-manufacturing industry has improved due to the cancellation of priority measures such as prevention of spread, and the impact of the lockdown in Shanghai, China, on the business sentiment of the manufacturing industry.
In addition, the number of unemployment insurance applications and manufacturing PMI, which look at the supply and demand of labor in the United States, are likely to affect the market.