Name: Phạm Thị Phương Mai

Number of student : SS171305

Individual essay

1. Examine these exchange rates: USD/VND, USD/JPY. Explain the impact of their
fluctuation/changes on trade and inflation of Vietnam and Japan.

Dola to VND:

The increase in the USD exchange rate caused the Vietnamese stock market to rapidly decline. Not only that,
foreign investors' cash flows are flowing out of Vietnamese stocks.However, foreign currency reserves have
continuously dropped, while the worldwide USD has continued to rise. It is not ruled out that the State Bank will
have to continue adjusting the USD selling rate.

The appreciation of the US dollar drives the price of US-made items to rise abroad, unless local distributors are
ready to absorb exchange rate changes.

JPY to VND:
When the price of JPY falls, the Japanese commercial will increase. Because when depositing in a bank, the
interest rate not only decreases but even becomes negative, so people who do not have a place to save will pour
money into higher spending, so the commercial value increases. Besides, demand increases and supply increases,
stimulating production.

Besides, when the price of JPY decreases, people will sell JPY and buy dola. Since then, it will make JPY more and
more depreciated, the dollar will increase in price, knowing that JPY is not respected and no one will make it lose
its liquidity.

The appreciation of the US dollar drives the price of US-made items to rise abroad, unless local distributors are
ready to absorb exchange rate changes.

2. Describe policies of the VietNam and Japan governments in controlling these exchange
rates. Whether these policies are proper in the current situation or not?

Policies of the VietNam:

- The year 2000 represented a watershed moment in the South Vietnamese foreign currency market
when the State Bank entirely altered the system for fixing the exchange rate.
- From subjectively deciding the exchange rate based on the state bank's desire to the managed floating
method, which determines the customer exchange rate based on market supply and demand.
- To modify the exchange rate, the State Bank can alter supply and demand in the interbank foreign
exchange market by buying and selling foreign currencies.
- This management method is softer, more flexible, and consistent with international principles, which
helps to promote integration into the global economic community.
 - By 2014, the State Bank of Vietnam has established a target exchange rate of no more than +2%. This
is also the year when the usage of VND gradually expanded; as a result, the State Bank of Vietnam has
loosened the eligibility for foreign currency loans under the Government policy, focusing on priority
sectors and commercial banks' foreign currency exchange capability.
- Businesses can receive finance at a reduced interest rate of less than 4-5% per year when compared to
VND loans.
- In Vietnam, the currency rate is determined by external economic conditions, trade balance, and State
Bank policy. The central exchange rate mechanism flexible mind is the State Bank's exchange rate
management policy. That is, use a fixed exchange rate and alter it based on the 2% margin.

Policies of the Japan:

- In July 2018, the BOJ flexibly altered its 10-year bond yield target, giving interest rates in the 0.2%
range up and down. The BOJ continued to expand interest rate flexibility until March 2021 when it
announced a 10-year rate rise from 0% to 0.25%. With the Federal Reserve of the United States
leading the global monetary tightening trend, Japan's current inflation rate permits the BOJ to broaden
its target range even more.
- In Japan, inflation has surpassed the BOJ's 2% stability objective since April 2022, hitting 3% by
August 2022. However, the BOJ appears eager to maintain the status quo. Haruhiko Kuroda, Governor of
the Bank of Japan, underlined that the high inflation rate is mostly attributable to global commodity
prices, rather than rising local demand.
- Because of the growing 10-year yield differential between the US and Japan, the yen will be overvalued
in 2022. In June 2022, the BOJ defended its quota by purchasing more than 16 trillion yen ($114 billion)
in bonds. The BOJ is concerned that, like Australia and South Korea, a hike in the US base rate will raise
10-year interest rates in the three nations, but will not prevent the yen from falling.