00:00Well, from all of the frameworks, dolly yen should be lower, the classic frameworks.
00:03We should be talking 140, 150, if you use interest rate spreads as your guide.
00:07That's why a lot of guests would have come on your show and say the weakness in the yen is
00:11going to be short term.
00:12I think dolly yen heads lower into year end.
00:13But there's been a change in the flow behaviours of the Japanese space.
00:17It doesn't look like a G10 currency.
00:19It trades like an EM.
00:20In terms of its correlation to rates, it has flipped.
00:23It's got a negative correlation to rates right now.
00:25And this is something that we don't usually talk about,
00:27but we have spoken about for the UK over Brexit and all these other things.
00:30And that was when everyone was worrying about the fiscal side in the UK.
00:33So is it the same concern over in the States, in Japan?
00:36There's definitely concerns.
00:37We're waiting to see what the consumption tax cut will be on food
00:40and what other ways they're going to fund that.
00:42They said they'll fund it from higher revenues,
00:43but the market thinks they're sniffing around,
00:46thinking there's got to be some extra deficit financing bonds.
00:50But the main point is Japan's not on EM.
00:52And actually, we've seen massive inflows into Japan,
00:55the biggest inflows, in fact, over the past year,
00:57by foreign investors into both JGBs and equities.
01:00But those foreign investors, after Liberation Day,
01:03are massively hedging their exposure.
01:04So you've got that inflow into Japan,
01:07potentially crowding out Japanese investors
01:08who are also investing abroad,
01:11but they don't FX hedge the same way as foreign investors
01:13because they have to pay for that FX hedge,
01:16where Europeans and US get paid for it.
01:18So in answer to your question,
01:19we've had a big carry trade where a lot of hedge funds are short,
01:22the yen, a lot of CTAs and trend-following accounts.
01:25Yesterday looked like something different.
01:26And we had that report, I think it was from Reuters
01:28or some other outfit,
01:30suggesting that the BOJ and the Ministry of Finance,
01:33to be more specific,
01:34is no longer going to tell us with final warnings
01:36like they did earlier this year.
01:38Ambush tactics is the word that they used.
01:41And suddenly you get a nearly 1% move
01:43lower in Dolly and off the back of that.
01:45Is that because of the report?
01:46Is that just people taking risk off?
01:48Potentially.
01:48But it could be something different.
01:49With that.
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