Against a backdrop of tighter dollar liquidity, Japan now appears to be showing signs of capital flight. Japanese stock, bond and foreign exchange markets fell across the board on Monday.

On June 13, the Japanese stock market suffered a sharp fall. Tokyo Electronics, Softbank Corp. and others dragged down the Nikkei 225 index by more than 3%; the yen fell below the 135th mark within days and continued to innovate low; and the yield on Japanese 10-year government bonds rose above 0.25%. It broke through the upper end of the Bank of Japan's policy range, the highest level since the implementation of the Bank of Japan's negative interest rate policy in January 2016. The Bank of Japan said it would buy an additional 500 billion yen of 5-10-year government bonds on Tuesday.

Despite the "verbal intervention" of Japan's three sectors in the exchange rate last week, the depreciation of the yen slowed in the short term. However, some analysts pointed out that for the yen exchange rate, which has hit a new low for more than 20 years, "verbal intervention" alone is obviously unable to reverse the trend, and the pressure of "competitive devaluation" of the yen in the context of tightening dollar liquidity will still increase. After the yen fell again today, the dovish governor of the Bank of Japan, Toshihiko Kuroda, publicly expressed for the first time that he did not like the sharp fall in the yen:

The recent rapid weakening of the yen is bad for the economy. It is important for exchange rates to reflect fundamentals and will continue to pay close attention to the impact of exchange rates on the economy. "

In addition, the statement of exchange rate manipulators in the semi-annual report on the macroeconomic and foreign exchange policies of major US trading partners submitted by the US Treasury Department to Congress on June 10 makes it very unlikely that Japan will intervene directly in the short term. Yuji Saito, executive director of the CIB Tokyo foreign exchange department of Credit Agricole, commented:

[the document] largely rejects Japan's direct intervention in the weakness of the yen caused by the widening spread between Japan and the US, and the dollar's rise against the yen is unlikely to stop until the US economy slows or inflation peaks. "

Us CPI "exploded again" in May, rising 8.6 per cent from a year earlier to a 40-year high, adding to money market bets that the Fed will continue to raise interest rates 50bp in July and September.

Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute, said US CPI data showed that inflationary pressures were becoming more common and had a greater-than-expected impact on food and energy. In response to the Japanese stock market, technology and growth stocks are likely to lead the decline.