"Japan raises interest rates again"... Yen-Dollar hits 140 yen

Expansion of Yen-Dollar trading fluctuations

Tokyo real estate market outlook uncertain

Japan's central bank struggles with interest rate increase

"US-Japan interest rate gap narrows" Yen-Dollar trading

"Political pressure on economy" concerns over government intervention

'Yen carry trade' potential resurgence worries

Yen-Dollar exchange rate rose to 150 yen per dollar for the first time in a month (Yen value increase). In December, there is a high possibility that Japan's central bank will raise the base interest rate further. In the market, there are concerns about the potential resurgence of the 'Yen carry trade' that had previously shaken the global financial market after Japan's central bank raised interest rates in July.

Tokyo real estate market boom

On the 29th, the Yen-Dollar exchange rate fell below 150 yen per dollar, reaching 149 yen per dollar at one point. The Yen-Dollar exchange rate had risen to 156 yen per dollar in mid-month. The US inflation resurgence due to President Trump's election and related policies has been a significant factor. The expectation that the US interest rate hike pace will accelerate has expanded Yen trading and Dollar trading fluctuations.

However, the Tokyo CPI announced on this day fell short of market expectations, causing the Yen-Dollar exchange rate to drop. The Tokyo CPI in November (excluding fresh food) rose 2.2% compared to the same month last year, exceeding the market forecast of a 2.1% increase. The increase was the largest in three months. Tokyo's real estate market is a leading indicator of national real estate prices. Japan's real estate prices are steadily recording an increase of over 2%. However, wages are not rising as much, and real wages are experiencing a minus trend.

Ueda Kazuo, Governor of Japan's central bank, stated in a lecture on the 21st that the monetary policy decision meeting scheduled for December 18-19 is still a month away, and that more data will be available in the future. In the market, the Tokyo CPI announced on this day is expected to act as a material for additional interest rate increases at the December meeting. Nihon Keizai Shimbun reported that the interest rate gap between the US and Japan is expected to narrow due to the additional interest rate increase by Japan's central bank, and that Yen trading and Dollar trading fluctuations have expanded.

In the US, the Thanksgiving holiday started on the 28th (local time), and the decrease in foreign exchange trading is believed to have affected the Yen-Dollar exchange rate volatility. Ueda Daisaku, a strategist at Mitsubishi UFJ Morgan Stanley Securities, pointed out that the Yen's acceleration was due to the overlap of the Trump Trade dilemma and the Thanksgiving holiday.

Japan's central bank has maintained the interest rate at 0.25% per annum for two consecutive months until last month. After raising the interest rate from 0~0.1% per annum to 0.25% per annum in July, it has maintained the same rate for two consecutive months until October. Japan's central bank is considering raising the interest rate if the economy and real estate market align with expectations.

Political pressure again

Japan's central bank's interest rate increase this year has led to various changes in Japan's financial market. Japan's largest life insurance company, Nippon Life Insurance, is raising the expected interest rate for some products for the first time in 40 years. The pension insurance rate is being raised from 0.6% per annum to 1% per annum, and the life insurance rate is being raised from 0.25% per annum to 0.4% per annum. This applies to new contracts from January 2 next year. The expected interest rate is used when calculating the insurance premium discount rate. If the expected interest rate is raised, subscribers can receive the same amount of money with a lower insurance premium than before.

The interest rate increase is also linked to the valuation loss on Japan's central bank's held government bonds. The market value of Japan's central bank's government bonds at the end of September was 571 trillion yen, down 1.5% compared to the end of March, while the average maturity size increased to 13 trillion yen. If interest rates rise, the market price of government bonds falls. Japan's central bank generally holds government bonds until maturity, so the negative financial impact is not immediate. However, if the interest rate increase continues, there are concerns about the potential for an increase in average maturity.

In early August, there was also the possibility of a resurgence of the 'Yen carry trade' that had shaken the global financial market. At that time, the clearing was the result of the US employment statistics deterioration and the interest rate increase by Japan's central bank, but there is a high possibility that it was not completely cleared, according to experts.

The pressure is on Japan's government. The interest rate increase is due to concerns about whether it will dampen the economic recovery. Prime Minister Fumio Kishida, who took office last month, said in his first press conference with Ueda, "I do not think it is an environment to raise interest rates additionally." He also stated, "I expect the economy to develop while maintaining the (financial) normalization base with Ueda."