The depreciation of the yen is accelerating.

In the New York foreign exchange market on the 1st, the yen exchange rate fell to the 140 yen level to the dollar, which was the lowest level in 24 years.

The trigger for this was the speech by FRB Chairman Jerome Powell on August 26.

Attention was focused on which of the Fed's priorities would be economic considerations or the suppression of inflation, but Chairman Powell showed a strong determination to keep inflation down.

We verified how the market received 8 minutes and 50 seconds of Powell's lecture.

(Economics Department reporter Koki Nishizono)

All 10 market participants say "as expected"

Jackson Hole is a luxury resort town overlooking the Rocky Mountains in Wyoming, USA.



The symposium, which began on August 25, local time, gathered top central bankers from major countries, including Bank of Japan Governor Kuroda and Fed Chairman Powell, as well as prominent economists and economists.



Powell's speech, which began at 11:00 p.m. on August 26, Japan time, attracted the most attention.

In the market, there was growing concern about a slowdown in the US economy, and some speculated that the Fed might slow down its pace of monetary tightening in consideration of the economy.



What threw cold water on the market was the following statement, which was made about a minute and a half into the lecture.



"It's going to cause some pain to households and businesses to keep inflation under control, but it's an unavoidable cost. But failure to restore price stability will hurt even more.



" Prioritize curbing inflation even if there is a sacrifice.



The stock market reacted strongly to this strong message.



The Dow Jones Industrial Average plummeted by more than 1,000 dollars as financial tightening continued for a long period of time, and a sense of caution spread over the economic slowdown.



What kind of “surprise” was this for the market?



When I asked 10 Japanese economists, analysts, and other market insiders, surprisingly, all 10 said that the government's prioritization of controlling inflation was "as expected, and there were no surprises."



However, overall, there were two points that were received with a sense of “surprise”.

Why was it "8 minutes and 50 seconds"?

One is lecture time.



The agenda for the symposium, which was published in advance, called for Powell's speech to be 30 minutes long.



However, it ended in an unexpected 8 minutes and 50 seconds.



Since 2012, the paper version of the FRB chairman's speech at the Jackson Hole conference has been 19 at most (excluding the cover page, charts, and reference columns) and 9 at most, but this time it is only 5. It was a piece.



I was the same, but I think there are many people who were surprised, "Is this the end?"



"My remarks will be shorter, more focused and direct," Powell said at the beginning of his speech.



A market insider pointed out that he deliberately shortened his lecture time and condensed it into a simple message in order to prevent the market from creating a situation that would generate speculation. .

Lessons Learned from the Fed's History of Failure

Second, it gave historical examples of the Fed's failure to control inflation.



Chairman Powell gave an example of monetary policy in the 1970s.



Crude oil prices soared due to the oil shock triggered by the Fourth Middle East War, and inflation was rapidly progressing in the United States.



Arthur Burns, who led the Fed at the time, did not sit back and raised the policy interest rate from 3.5% in February 1972 to 13% by May 1974.

However, with inflation continuing, the FRB changed its policy stance to monetary easing in July of this year, out of concern for the economy.



As a result, the inflation rate surged to 12.3% in December 1974, after which the United States suffered from stagflation, in which inflation and recession occurred simultaneously.



In this regard, Chairman Powell pointed out:

``In the 1970s, the expectation that the inflation rate would rise as the inflation rate rose became entrenched



in the economic decision-making process of households and businesses.''



Fall into a vicious cycle of rising.



Citing these lessons from history, Powell noted that the containment of inflation in the early 1980s came after the previous 15 years of unsuccessful attempts to contain inflation.



And then I will quote Fed Chairman Paul Volcker, who succeeded in keeping inflation under control by implementing a bold tightening policy at the time.

“Inflation feeds on itself, so the job of returning to a more stable, more productive economy must be to break out of the dominance of inflationary expectations.”

why did it fail

A historical lesson unraveled from the monetary policy of more than 40 years ago.



However, there remains a question as to why the United States suddenly changed its policy from tightening to easing at the time when inflation was not subsiding.



Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities, explains that in exploring the reasons for this, there is another character besides Chairman Burns.



That was Richard Nixon, then president (January 1969-August 1974).



President Nixon was forced to resign after the Watergate scandal, which was linked to the attempted wiretapping of the Democratic Party Headquarters.



President Nixon said that he was strongly aware that a recession would put him at a disadvantage in the election, and he urged Chairman Burns to ease monetary policy.



This resulted in a sudden rate cut amid rising inflation.



Mr. Fujito points out that Chairman Powell may have been aware of this series of poor responses by Mr. Burns.

Norihiro Fujito, Chief Investment Strategist, Mitsubishi UFJ Morgan Stanley Securities


: “At the Jackson Hole conference last year, Congressman Powell made an optimistic remark that ``the rise in prices is likely to be temporary.'' The delay in responding to monetary policy has been criticized.If inflation continues, Chairman Powell will also be judged by history.That is why Chairman Powell said in a short speech at Jackson Hole, "I am is not Barnes!”

What Powell's "Pain" Means

Powell said keeping inflation in check would also hurt households and businesses.



So what was the “pain” of curbing inflation in the 1980s?



Volcker's fight against inflation took a heavy toll, with the unemployment rate rising from around 6% in 1979 to over 10%, and the United States slipping into two recessions.



What kind of challenges will America face under Chairman Powell, who said, "We have to keep doing it until we finish it," and how can the United States overcome it?



We also need to learn from the lessons of history and take a closer look at Japan's course, as to how it will affect the yen's depreciation against the dollar and how it will affect the global economy.

It's a movement that will be featured after the 5th.

On the 5th, the new leader of the ruling Conservative Party will be announced in the UK to replace Prime Minister Johnson.



There will also be talks on OPEC+, which will be formed by major oil-producing countries, and the focus will be on whether or not to cut crude oil production.



Also, the European Central Bank will hold a board meeting and announce the policy rate.

There are also speculations that the Fed will raise interest rates significantly, and the market is paying close attention to Governor Lagarde's press conference after the announcement.



Also, pay attention to the remarks of Fed Chairman Powell on the 8th.