00:00Dollar disbasement is a theme in the markets this week. There's been a huge turnover.
00:0510 currency options and a convenient explanation for a lot of people is that.
00:10U.S. risks are growing, whether it's unpredictable policy or the continued growing budget debt.
00:15Deficit fiscal profligacy. Yet you look at other U.S. assets like equity.
00:20Moving higher. How do you explain this turn against the dollar?
00:25It's a great question, and I have some of those same questions myself.
00:30But I think that the geopolitical slash political environment.
00:35That we're in. And the ongoing evolution in some cases.
00:40Uncertainties about U.S. policies is very much important.
00:45As we think about the softening of the dollar. Also, as you highlighted, the...
00:50threats of intervention to support the end. And maybe a little bit better.
00:55Improved sentiment regarding the end is also in play.
01:00But it does feel like overall an environment that's trending toward...
01:05A softer dollar. And then finally, to kind of reconcile...
01:10A softer dollar on the one hand. With the better performance.
01:15To say of U.S. equity markets.
01:17I think that we saw this last year, and there are a lot of...
01:20A lot of foreign investors, in particular, who are not comfortable...
01:25...selling their U.S. possessions and extinguishing those possessions.
01:30And what they do is they hedge the dollar exposure in the...
01:35...the tax market. And I think we're probably seeing more of that, which is...
01:40...a play similar to what we saw through much of 2025.
01:43And of course, when it comes...
01:45...to potential intervention in the yen, there was huge news, at least for the currency market...
01:50...last week, when the Federal Reserve, the New York Fed, specifically...
01:53...reportedly did a rate check...
01:55...of the dollar-yen cross, which basically asking for a quote on dollar-yen...
02:00...which triggers speculation that the U.S. and Japan would combine...
02:03...they would team up to intervene...
02:05...in the FX market to support the yen. How is that significant from where you sit...
02:10...in terms of changing the overall trajectory of dollar-yen and how we think...
02:15...about flows in currency markets affecting global economies?
02:20Yes.
02:20The reality here is that a further awakening of the yen from the level...
02:25...that we were seeing last week. And in tandem with that, a further...
02:30...the pressure on the back end of the JGB curve would have...
02:35...been a threat to Japan. But Japan is a major financial market...
02:40...in a major economy in the world. And those pressures in Japan...
02:45...inevitably would have...
02:47...transmitted themselves into other global markets.
02:50So from a Japanese financial stability perspective...
02:55...it makes a lot of sense for the...
03:00...U.S., Japan, and potentially other major economies.
03:05...to work together to try to address some of these tensions. And candidly, I think...
03:10...it's encouraging to see the U.S. working closely with some of our...
03:15...traditional allies.
03:17Does the U.S. want a weak dollar or not? I mean...
03:20...initially, if you were to ask Scott Besson, the Treasury Secretary, he said...
03:23...he would say that, you know, we believe in a...
03:25...strong dollar. That is our stance. And that's kind of been consistent...
03:28...across administrations. Yet we know...
03:30...that this president is very focused on manufacturing...
03:33...is very focused on exports, the trade...
03:35...and that would entail a weaker currency.
03:38Well, what we...
03:40...we can say safely is...
03:42...we're seeing...
03:45...at a very weak end. It's not quite as weak as it was...
03:49...last week.
03:50But if there were further weakening, you know, from the 150s into the 160s...
03:55...that instability would not be good for...
04:00...or U.S. markets would not be good for global markets. And over and above...
04:05...what that implies about the specific level of the dollar, it would...
04:10...be unwelcome and potentially...
04:13...could see...
04:14...so this...
04:15...seeds for further volatility. But maybe more directly on your question...
04:20...you know, I don't think Secretary Besson is shedding any tears...
04:23...to see a little bit of further...
04:25...dollar depreciation from here. He's got to be careful not to cheer it on too much.
04:30...because it can become self-sustaining, can become a problem on the other side.
04:34But when you view...
04:35...the dollar from a longer-term historical perspective, it is still a...
04:40...remarkably strong currency.
04:42Okay. Nathan, I want to get your take also on...
04:45...the FOMC decision on Wednesday. We know that the Fed is unlikely to...
04:49...cut interest rates.
04:50So what will be in focus is obviously what J-PAL says during the news conference.
04:55There's not going to be a new updated dot plot. We are not expecting...
04:58...any kind of announcement from the president...
05:00...on his next Fed chair pick. So there will be a lot of questions...
05:03...certainly around Fed independence.
05:05What do you hope to learn from J-PAL on Wednesday?
05:08I think that...
05:10...this is probably as simple and straightforward a meeting...
05:15...for the Fed as we've seen in a long time. As you highlight...
05:20...very little probability that the Fed is going to cut. And I think the big...
05:25...question that we and the markets are focused on is just how much...
05:30...does J-PAL signal about the March meeting...
05:35...does he highlight it could be open for further cuts...
05:40...versus speaking more skeptically about cuts. My feeling is that J-PAL...
05:45...is very pragmatic and he's going to want to do everything he...
05:50...can to preserve his optionality. And he's going to make clear we're not...
05:55...cutting the day. But we'll see where the data land...
05:58...and we're prepared to move it.
06:00...as necessary at the next meeting...
06:02...which may include the possibility...
06:05...of further easing of policy.
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