US shifts crisis and predicament to the world by rate hikes

TOKYO: The Japanese currency, or the yen, has plunged sharply against the U.S. dollar amid aggressive rate hikes by the U.S. Federal Reserve, forcing the Japanese government to intervene in the forex market for the first time in 24 years.
An expert here noted that Japan is not the only country troubled by such rate hikes, and the United States is shifting its predicament and crisis to the entire world.
The root cause of the yen’s sharp depreciation lies not in Japan but in the United States, Hidetoshi Tashiro, chief economist at Sigma Capital Ltd, said in an exclusive interview with Xinhua.
Amid the Fed’s continuous rate hikes this year, depreciation pressure for the yen is mounting. The yen, which started the year at around 115 to the dollar, hit a 24-year low by approaching the line of 146 yen per dollar on Sept. 22, falling more than 25 percent and drawing the attention of the global market.
The Fed has raised interest rates five times so far this year and has signaled more aggressive rate hikes ahead.
Tashiro said that the United States, having missed the best window to tame inflation, is now attempting to solve its own high inflation conundrum by repeated sharp rate hikes at the expense of other countries.
The Bank of Japan (BOJ), the country’s central bank, is stuck with its ultra-loose monetary policy because of weak domestic demand and sluggish economic recovery, the expert noted, adding that the opposite monetary policies adopted by Japan and the United States have resulted in the yen’s nosedive.
According to Tashiro, the debt burden for the Japanese government has exceeded 1,200 trillion yen (about 8.3 trillion U.S. dollars) and will increase by about 12 trillion yen if the central bank raises rates by one percentage point, more than doubling the country’s defense budget.
Given the monopoly status of the U.S. dollar in the global economy, especially in international trade, the Fed’s rate hikes have drawn the world’s capital to the country, directly triggering the currency depreciation and the rise of prices in other countries, said Tashiro.
Therefore, the United States has transferred its current predicament and possible future crisis to the world by raising interest rates, he said, adding that some countries are forced to raise their interest rates, thus resulting in a troubled economy.
For Japan, it is not only the nominal exchange rate that weakens rapidly, the real exchange rate has also fallen sharply, the economist said.
Data from the Bank for International Settlements showed that Japan’s real effective exchange rate in August had hit the low levels seen 50 years ago.
Japan is suffering from the double blow of a sharply sliding yen and skyrocketing prices of imported goods, said Tashiro.
Due to Japan’s high import dependence, surging import prices have put many Japanese companies in trouble. Tashiro said that several high-end restaurants in Chinatown in the city of Yokohama had already shut down due to soaring costs and unsustainable operations. Ordinary Japanese consumers have also had to bear the brunt of rising prices across the board, and the weaker yen has made it much more expensive for them to travel abroad, he added.
Some have always argued that the yen’s depreciation is beneficial to Japan’s export industries. Still, the reality is that it has led to surging import prices. Export firms have to face rising costs as prices of resources and materials are on the rise, he said, adding that some export enterprises may have collapsed before completing the processing and production cycle due to the turbulence in the financial market.
After a two-day policy meeting, BOJ governor Haruhiko Kuroda on Sept. 22 rejected the idea of raising interest rates “for the next two to three years” at a press conference, explaining the country’s decision to prioritize economic recovery and remain on ultralow rate policy.
The yen saw a rapid slide after the press conference and Japan’s Finance Ministry was forced to step in with a yen-buying intervention. The Japanese currency once rebounded to 140.78 to the dollar on the same trading day.
Tashiro estimated that the intervention cost the Japanese government about 3 trillion yen, after which the yen still weakened to about 144 to the dollar.
There is so much depreciation pressure on the yen that it is tough for the government to intervene to stop the yen from falling further. If the government realizes this and does not intervene further, it is quite possible that the yen will hit 160 or even 170 to the dollar this year, said the economist. – Xinhua