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[11 de Tokio]- The reason the dollar / yen started to rise is that the dollar / yen stopped depreciating while the yen continued to depreciate. The risk to the dollar depreciated until the end of last year, but this year the dollar has stopped depreciating against many currencies.
The depreciation of the dollar came to a halt because rising US long-term interest rates began to affect the appreciation of the dollar, and the US long-term interest rate and the dollar exchange rate. they were inversely correlated with the forward correlation (the US interest rate and the dollar tended to move in the same direction). It can be said that the rise in real interest rates as well as the nominal interest rate in the United States has facilitated the strengthening of the dollar.
On the other hand, the inverse correlation between the price of US stocks and the dollar (the tendency of US stocks and the dollar to move in the opposite direction) is weakening and risk depreciation on the dollar is weakening. In addition, the forward correlation between US stock prices and the cross yen is weakening, and the depreciation of the risky yen is also weakening.
On the other hand, the forward correlation between the US long-term interest rate and the cross yen continues, and it can be said that the increase in foreign interest rates linked to the US interest rate caused the rise in the yen crossed.
In other words, the rise in long-term interest rates in the United States stopped the depreciation of the dollar and the increase in interest rates abroad affected the depreciation of the yen, causing both the dollar / yen and the yen crossed to rise. The reason the dollar / yen rose is due to the rise in long-term interest rates in the US rather than the depreciation of risk on the yen.
The causes of the rise in long-term interest rates in the United States and the appreciation of the dollar are 1) the expectations of fiscal expansion in the United States, 2) the expectations of economic recovery in the United States, and 3) the attitude of the US financial authorities.
The triple blue, in which the Democratic Party of Japan controls the president of the United States, the Senate and the House of Representatives, allows a large-scale fiscal policy. Not only will the $ 1.9 trillion economic stimulus package be implemented, but there is a good chance that fiscal spending will increase with the budget for the new fiscal year that begins in October of this year.
Expectations of US fiscal expansion will continue and higher long-term interest rates are likely to cause the dollar to appreciate. However, if the US economy appears to be slow to recover even as fiscal spending increases, there is a risk that concerns about the expansion of the budget deficit will grow and the dollar will weaken.
Expectations of economic recovery are likely to rise as US economic indicators improve. Last year, real interest rates were low even as the expected inflation rate increased as the number of cases in the US increased. that US economic indicators fell below market expectations. However, this year, the number of cases in which US economic indicators exceed market expectations is increasing and real interest rates are increasing.
Since last year, the Economic Surprise Index has tended to move in the opposite direction, some four weeks behind the movement in the number of new coronavirus infections in the United States. With the number of new corona infections declining earlier this year, US economic indicators are likely to exceed market expectations for the time being, and rising interest rates are likely in the long run. US term
However, if the number of newly infected people changes to an increasing trend, there is a risk that US economic indicators will fall below market expectations and the dollar will weaken due to falling rates of long-term US interest
Many US monetary officials have indicated that they will tolerate the recent surge in government bond yields as a reflection of the prospects for economic recovery and inflation, which have contributed to rising US interest rates. Long-term. The US Federal Reserve does not need to take additional relaxation measures, as the US government will accelerate the economic recovery if it takes large-scale economic measures, and it is necessary to increase the purchase of government bonds to curb the increase in long-term interest rates. There seems to be the idea that there is no such thing.
Unless there is a need to worry about a slowdown in the US economic recovery, US monetary officials will maintain their current policy rates and bond buying pace until significant progress is made towards maximum employment and price stability targets. curb the rise in long-term interest rates.
Given these factors, upward pressure on US long-term interest rates will continue, but there is not much room to increase. This is because rising interest rates have been coupled with rising US stock prices, which has strengthened the feeling of overvalued stock prices in terms of the arbitrage relationship with interest rates, and it is believed that rising stock prices will not. make significant progress.
The yield spread, which is obtained by subtracting the yield on US S & P500 stocks from the yield on 10-year US government bonds, has increased to about minus 3.0%, approaching to minus 2.8%, minus 2.6%, which has been the upper limit since 2008. ing. As US interest rates rise, equity prices are likely to decline and interest rates are likely to decline, making equity prices and interest rates unlikely increase significantly.
Also, if there is concern that an increase in long-term interest rates accompanied by an increase in real interest rates will lead to a stronger dollar and lower stock prices, which will have a negative impact on the economy. American that cannot be overlooked, US financial officials will increase the purchase of government bonds to raise interest rates, but if you can handle it, it will tighten the market. If that happens, it is very likely that the rise in nominal and real interest rates and the appreciation of the dollar will be suppressed.
<¿Hay espacio limitado para que suba el par dólar / yen?>
The forward correlation between the US stock price and the dollar / yen is weakening, and there are many cases where it becomes a reverse correlation. This indicates that there is not a big difference between the depreciation of the yen with risk and the depreciation of the dollar, and the appreciation of the yen without risk and the appreciation of the dollar. Therefore, the dollar / yen pair is unlikely to rise significantly even if US stocks rise. Also, even if US stocks depreciate, the dollar / yen pair is unlikely to fall sharply.
While the dollar / yen pair is unlikely to rise in the activated risk phase and fall into the risk reduction phase, it is likely tied to long-term US interest rates. If long-term interest rates in the United States rise, so will the dollar / yen pair. In the future, the appreciation of the dollar and the depreciation of the yen will likely slow down, and the dollar / yen pair will not easily exceed 110 yen.
(This column was posted on the Reuters Forex Forum. It is based on my personal opinion).
* Yuji Kameoka is the chief exchange strategist at Daiwa Asset Management. After completing the master’s program at the Tokyo Institute of Technology, he joined Daiwa Securities and worked at Daiwa Institute of Research and Daiwa Securities Capital Markets before assuming his current position.
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