Yen to USD, No Rate Cut; RMB Also Holds Steady

This year, the market has been rife with speculation that the Federal Reserve has frequently hinted at not lowering interest rates for the US dollar. Where do they get their confidence? Recently, the Americans have revealed the answer: the yen has been sacrificed to provide a blood transfusion.

This move is quite ruthless. Japan has lost half its life, and the US dollar has gained a breather, even regaining the ability to raise interest rates. However, the Americans can't figure out why China not only hasn't fallen but has become stronger despite the challenges.

Recently, the depreciation of the yen has allowed international short sellers to take advantage, causing the yen to plummet from around 140 at the beginning of the year to around 160.

It was expected that Japan would directly give up resistance, as they have no choice but to unconditionally cooperate with the US, whether as an ally or a puppet.

However, some say that the Bank of Japan has been restrained by the US several times when it wanted to intervene.

US Treasury Secretary Yellen called for a secret meeting with the finance ministers of Japan and South Korea, after which she publicly warned Japan against excessive intervention in the foreign exchange market.

Up to this point, the situation has become very clear. The US authorities have joined forces with international short sellers to direct this drama, on the one hand, trying to launch a final battle to defeat the Asian foreign exchange market, especially the renminbi.

On the other hand, the US dollar has been raising interest rates for more than two years, and the US can no longer hold on. The sacrifice of the yen to replenish blood allows the US dollar to not lower interest rates and even has the ability to raise them again.

With the US dollar having the conditions not to lower interest rates and even to raise them, the renminbi, of course, cannot slack off. It cannot massively cut reserve requirements and lower interest rates for the time being, otherwise, it would widen the interest rate gap between China and the US, which could lead to accelerated bleeding.

Since last year, many people have said that both China and the US are gritting their teeth and holding on, just to see who can't hold on first, and whoever releases a large amount of water first will be finished.If the United States insists on not holding back and takes the lead in lowering interest rates to flood the market with liquidity, it is highly likely that China would become one of the destinations for a capital spree, and the Chinese economy would once again usher in a golden period.

At that time, there would be no talk of the dollar reaping or not reaping, because our stock market and real estate have already been stripped of their fat, leaving the dollar with no choice but to flow into industries, manufacturing, and technology—sectors where, aside from China, there are few better places in the world.

However, if China cannot hold on and starts a large-scale monetary easing while the dollar remains at a high interest rate, according to common logic, it is highly likely to be continuously drained of capital.

But none of these things have happened. The Americans are frantic, while China seems unfazed. After a difficult period last year, it has recovered this year.

In the first quarter of this year, our economy, exports, high-end manufacturing, and the new triad, among other things that alarm the United States, have all risen across the board, thriving and flourishing.

The Americans do not understand why, despite the Chinese exchange rate not being crushed, the financial sector not being defeated, and the stock market and real estate teetering on the brink, they have not collapsed, and the economy has instead grown stronger under pressure.

The U.S. financial sector is indeed powerful, but it is still an old mindset accumulated over decades or even centuries. They cannot comprehend China's brand-new financial operations.

For the Federal Reserve and Wall Street, the core of finance is currency, and the game is all about the dollar, involving stocks, futures, bonds, currency speculation, short selling, and harvesting.

These concepts are all over a century old and are still confined within the financial realm. Especially since the hollowing out of manufacturing after the 1970s, Americans have become obsessed with financial games and have forgotten how to engage in industrial operations.

Americans have not realized that our finance is industry, it is about real industry, manufacturing, consumption, and even real estate. Measures such as reserve requirement ratio cuts and interest rate reductions are already traditional tools; we also use them, but they are not the most important.Some people may not fully understand what we have done, so let me provide a few examples to help broaden our thinking together.

The first thing is targeted interest rate cuts.

After the economy gradually recovered in the first half of last year, multiple rounds of targeted interest rate cuts have been conducted since the second half of last year, with significant effects.

For instance, on January 25th of this year, the central bank reduced the interest rates for agricultural re-lending, small business re-lending, and rediscounting by 0.25 percentage points each. This was a targeted interest rate cut for agriculture and small and micro enterprises.

On February 20th, the 5-year LPR (Loan Prime Rate) was reduced by 25 basis points, which some experts believe was a targeted interest rate cut for medium and long-term corporate loans and mortgages.

The benefits of targeted interest rate cuts are quite clear: the scale and direction of the released funds are controllable, avoiding the short-term arbitrage risks caused by widening interest rate spreads, and leaving no loopholes for international capital to exploit.

The second thing is to promote large-scale equipment upgrades and the exchange of old consumer goods for new ones.

Many people think that exchanging old for new is to promote consumption, but have you ever considered that it is also a large-scale targeted monetary injection? Moreover, it is a direct injection into certain specific consumption segments, truly benefiting the people.

The third thing is the central bank's involvement in buying and selling government bonds.

When the world needs more yuan, the central bank can buy more government bonds to release more yuan; when it doesn't need as much, the central bank sells government bonds to withdraw yuan.The fourth matter involves state-owned capital entering the real estate market, or in other words, the "trade-in" of existing housing for new ones.

This initiative requires a substantial investment, and thus essentially represents a targeted easing of liquidity for the real estate sector.

Yesterday's high-level meeting also highlighted the need for "overall research and development of policies and measures to digest existing housing stock and optimize the supply of new housing."

From this perspective, while the US is desperately raising interest rates to withdraw liquidity, we are directing liquidity to areas that lack it, and simultaneously using policy measures to lock in liquidity to prevent it from flowing out.

Therefore, this is a protracted war of attrition. Although we are not at ease, the Americans should not think they can defeat anyone.