Mr. Atsushi Kawakami, an advisor to Yamasawa Planning Co., a consulting firm, recently expressed the view that the dollar-yen exchange rate since the start of the year could be "80 yen against the U.S. dollar, a record high of 75.78 yen (October 21, 2011)," in response to the dollar's depreciation in the foreign exchange market.
There have been significant developments in international finance that could fundamentally shake the belief in the underlying currency dollar, such as the return of Greece's fiscal crisis, signs of the country's dollar's leaving, an increase in gold holdings by China and India, and China's aim to hegemony over its currency through the introduction of a crypto currency Digital Yuan.
In the U.S. stock market recently, the Dow Jones Industrial Average has been in the range of 30,000 dollars, and the strong performance has been conspicuous. On December 4, it hit a record high of $3218.26 on a closing basis. On the other hand, the dollar market in the foreign exchange market has continued to decline.
In relation to the employment situation in the United States, the number of new applications and receipts is still far from the state in 2019, but it continues to improve on a weekly basis. On the other hand, it is clear that the consumer confidence index (Conference Board), which represents consumer sentiment, has a small improvement from the bottom. Although employment has improved, it has become clear that it is not at a level that improves consumer appetite.
With e-commerce growing exponentially, the domestic retail industry will be significantly damaged if consumption falls in the U.S. in the lead-up to the Christmas sales season. In the U.S. oil industry, the break-even point in shale oil drilling operations is expected to be around $50, but the WTI crude oil market is expected to fall again to around $30 per barrel due to the decline prospect of growth in demand.
Financial market participants have whispered that a bubble will burst in the U.S. stock market.
If we look outside the United States, it is undeniable that the spread of covid-19 worldwide could lead to another financial crisis in fragile financially based countries such as Greece, where government debt continues to grow.
Despite the coronal disaster, China, which has been positive in its gross domestic product (GDP) growth forecasts, has been increasing its gold reserves in recent years. Although the U.S. holds 8,133.5 tons of gold (as of April 2019), which is the world's No. 1, well below China (1,874 tons), the sixth largest, China is generally viewed as more aggressive in purchasing gold.
Signs of swaying dollar confidence also come from the Middle East. The U.S. has so far succeeded in shifting all of its oil settlement payments to a system of Petrodollars that pay in dollars. The dollar has held a great position as a means of settlement of oil transactions.
According to estimates by oil majors and other sources, Petrodollars are estimated to have a market size of about $850 billion (based on 2017).
In the middle of November this year, Saudi Aramco, Saudi Arabia's state-owned oil company, was reported to be issuing Chinese Yuan-denominated bonds.
Mr. Joe Biden, who is expected to become the next US president, has indicated his willingness to return to the Iran nuclear deal. Speculation has also emerged that the Saudi government, concerned about a major shift in U.S. Middle East policy from the current Trump administration.
By the way, the controversy over the introduction of crypto assets (crypto currencies) has intensified in recent years. It all started in June 2019 when Facebook made public its "Libra" crypto currency concept (now renamed Diem). European and U.S. financial authorities have suppressed moves to introduce Libra, claiming that it would have a negative impact on the existing financial system and become a hotbed for fraudulent remittances.
Libra is not the only threat that financial authorities regard as a threat. It is the existence of a "Digital Yuan" promoted by China's Xi Jinping Regime.
Digital Yuan is likely to spread at an accelerated rate, as state-backed guarantees are provided in the face of state recognition of fiat currency and the risk of collapse. 2021 may be the year when currency issues are highlighted. If the U.S. stock market crash and the dollar plunge become a reality, a series of moves over dollar trading could sign a shake-up of the U.S. dollar's hegemony.
At any rate, we would like to pay attention to developments in the foreign exchange market for the time being.
Former Bloomberg News reporter and editor
Capitol Intelligence Group (Washington D.C.) as Tokyo bureau chief
Currently working as Managing editor of the news site MIRUPLUS.