What do you think about the appreciation of the RMB?
To be honest, many friends don’t understand, and some explanations may be more professional, so Arthur will explain it in simple language.
In fact, it is mainly the appreciation of the Japanese yen. The appreciation of the Japanese yen has led to our appreciation in disguise. Why does the appreciation of the Japanese yen lead to our appreciation? Because we have one thing in common with the Japanese yen, which is low interest rates. Low interest rates are easily regarded as carry currencies. What is a carry currency? Let me take the Japanese yen as an example. If you deposit money in a Japanese bank, your annual interest rate may be 1%, but if you convert Japanese yen into US dollars and deposit it in a US bank, the annual interest rate is 5%. What is this called? This is called interest rate differentials! When you suddenly want to exchange US dollars for Japanese yen one day, you find that at that time, 100 Japanese yen bought 1 US dollar. Now, due to the depreciation of the Japanese yen, you can exchange 1 US dollar for 200 Japanese yen. I exchanged more. What is this called? This is called exchange rate differentials! So most people play with the Japanese yen in this way, and can earn interest rate differentials and exchange rate differentials. What is this called? This is called earning both interest and exchange rate differentials, but now the problem is that the Japanese yen has been slowly appreciating throughout July, which makes some people who borrow Japanese yen to buy US bonds and US stocks sit still. If the yen continues to rise, will I still make money? I can't even say I will make money. I have added so much leverage. What if I lose money? I will lose more. So some people choose to close their positions. What does that mean? Sell all these dollars and US bonds and exchange them back. This exchange causes the yen to appreciate faster, because carry trading is essentially a pro-cyclical thing. If everyone is chasing risks and exchanges yen for dollars, the yen will continue to depreciate. But what if everyone wants to avoid risks? Then everyone will exchange dollars for yen, and the yen will continue to rise. If the yen is like this, isn't the renminbi also like this? The current interest rate of the renminbi is only 1%~2%, so there must be people who borrow renminbi in the foreign exchange market and play like exchanging yen. As a result, when they see that something has happened to the yen, it is easy to extend this emotion to the renminbi. People also choose to close their positions in renminbi, and the renminbi appreciates. Don't ask me how these people who speculate in renminbi and foreign exchange break through our foreign exchange management regulations. If you ask me, I don't know. Of course, are there other factors for the renminbi? Yes, the US dollar has depreciated because the US non-farm payrolls were lower than expected, the unemployment rate continued to rise, and the US dollar index fell again. These all have a very positive effect on stabilizing our exchange rate, but the most straightforward reason is because of the Japanese yen. To be honest, has our central bank done anything special?No. If we have to say there is, it is that we have just completed a round of interest rate cuts in the previous wave. Logically speaking, the renminbi should depreciate after the interest rate cuts, but our result is just the opposite.
In addition, Japan has another trick up its sleeve. It is outrageous. On July 31, the Japanese yen announced an interest rate hike. The Fed had just released a signal, and the market generally predicted that the Fed would cut interest rates in September. At this juncture, you want to raise interest rates. Isn't this the financial version of the Pearl Harbor attack? Then the tens of billions of dollars spent on buying US bonds will have to flow back to Japan. How much pressure will the US be under?
Generally speaking, when the Bank of Japan announces an interest rate hike, it often indicates that a global economic recession is coming. Although there may be no causal relationship in essence, there is a positive correlation. Generally speaking, the process is that the Federal Reserve raises interest rates first, then the European Central Bank raises interest rates, then the Bank of Japan raises interest rates, and then the global recession occurs. In February 2007, Japan announced an interest rate hike, and soon after the interest rate hike, the subprime mortgage crisis occurred. Going back to 2000, Japan announced an interest rate hike, and after the announcement of the interest rate hike, the US Internet bubble collapsed. So for those who hold US stocks now, I really suggest that you think again. Why does Japan, as the younger brother of the United States, dare to take advantage of this to raise interest rates? I think it mainly depends on Biden's withdrawal from the election. The US government is currently a caretaker government with little ability. Japan is now gambling that the United States has no ability to interfere with it. If it really interferes, I think Japan will be honest in most cases. I thought the United States was a kitchen knife, and Japan was a fish on the chopping board. As a result, the fish thrashed and shattered the knife!
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