From a positioning angle, this also makes yen risk asymmetric: when JPY is heavily disliked, intervention does not need to “solve” the structural problem to matter tactically. It only needs to interrupt a crowded funding trade.
So the interesting market question may be less “does intervention work long term?” and more “when does crowded yen-short exposure become too fragile to absorb another policy shock?”
The NISA accounts are one of the biggest causes of the weak yen. The government’s primary goal was to shift household wealth out of cash savings and into any financial investment. However, "the design of the program has inadvertently led to a massive wave of retail capital flowing into foreign equities—so much so that it regularly impacts the value of the Japanese Yen."
Great commentary as always. Do you think the brief push over 4.60 on the 10y was due to pressure from BoJ selling? It didn't last long but if we expect more intervention perhaps we'll see another spike in yields?
I don't know if what I'm about to write about is linked to what Robin is saying, but wouldn't the US like a new Plaza Agreement - one which allowed a relative devaluation of the dollar? But China for one would refuse to play ball the way America's main trading partners did in 1985. If I'm right doesn't America also want a strong yen? Ian
I think that's what I suggested in a question in the May 23rd call.
Imagine that AI equities plummet in Q4, AI investment ceases in Q1 '27, and a recession in Q2. Warsh slams Fed Funds to below other central banks. Investment and trade into the US reverse. I keep hearing that there's no alternative to USD for reserves, but wasn't there an alternative pre-Asian crisis? Which was to hold reserves in your own currency. If the USD is seen in a volatile secular decline that creates currency losses and no interest income, then isn't a central bank holding its own currency and gold as reserves a reasonable alternative?
I sense the central issue is that Bessent desperately wants Japan to raise rates rather than sell Treasurys to get the yen stronger whereas Ueda's view is that raising rates is not the solution for cost-push inflation.
Not fx intervention but both of a variety of tax hikes and raising official discount rates seem to be on the right direction though the policy mix is unpopular.
From a positioning angle, this also makes yen risk asymmetric: when JPY is heavily disliked, intervention does not need to “solve” the structural problem to matter tactically. It only needs to interrupt a crowded funding trade.
So the interesting market question may be less “does intervention work long term?” and more “when does crowded yen-short exposure become too fragile to absorb another policy shock?”
The NISA accounts are one of the biggest causes of the weak yen. The government’s primary goal was to shift household wealth out of cash savings and into any financial investment. However, "the design of the program has inadvertently led to a massive wave of retail capital flowing into foreign equities—so much so that it regularly impacts the value of the Japanese Yen."
Great commentary as always. Do you think the brief push over 4.60 on the 10y was due to pressure from BoJ selling? It didn't last long but if we expect more intervention perhaps we'll see another spike in yields?
I don't know if what I'm about to write about is linked to what Robin is saying, but wouldn't the US like a new Plaza Agreement - one which allowed a relative devaluation of the dollar? But China for one would refuse to play ball the way America's main trading partners did in 1985. If I'm right doesn't America also want a strong yen? Ian
I think that's what I suggested in a question in the May 23rd call.
Imagine that AI equities plummet in Q4, AI investment ceases in Q1 '27, and a recession in Q2. Warsh slams Fed Funds to below other central banks. Investment and trade into the US reverse. I keep hearing that there's no alternative to USD for reserves, but wasn't there an alternative pre-Asian crisis? Which was to hold reserves in your own currency. If the USD is seen in a volatile secular decline that creates currency losses and no interest income, then isn't a central bank holding its own currency and gold as reserves a reasonable alternative?
Robin, To my mind they are selling assets - US treasuries previously acquired when the Yen was strong and using the proceeds to buy yen?
I sense the central issue is that Bessent desperately wants Japan to raise rates rather than sell Treasurys to get the yen stronger whereas Ueda's view is that raising rates is not the solution for cost-push inflation.
I’m not sure if Japan has a choice if push comes to shove
Not fx intervention but both of a variety of tax hikes and raising official discount rates seem to be on the right direction though the policy mix is unpopular.
How do you think this idea?
But selling treasuries will push up yields on USG bonds which the USA doesn’t want so they are trapped