00:00Paul, how significant could this be?
00:04Yeah, good morning, Guy.
00:06So financial repression appears to be alive and well and living in Japan
00:09with the comments that we heard from Finance Minister Katayama today
00:12talking about wanting the pension funds to invest more of their money in Japanese assets.
00:19Our reporting uncovered that this was a sort of pre-planned statement
00:23that she gave at a regular press conference.
00:26And so the idea being that it's not certain whether this is jaw boning
00:31or if this is definitely a start of a new policy and a new plan among the Japanese government
00:36to get more of those investments that are overseas to come back home.
00:42The effect of that, of course, would be to put a bit of a cap on Japanese government bond yields,
00:46which would be very handy for the government and also support the yen,
00:48also favourable for the government given the pressure that the yen has been under.
00:52The best way to do it, have higher yields, make your Japanese government bonds more attractive,
00:56but they don't really want to do that.
00:58So we'll see.
00:59It will take a while for pension funds to actually change their mandate.
01:02We'll see whether this starts the ball rolling for some initiative that could really change things.
01:08But, Paul, what could it mean for Treasuries if you have a switch out of them and into JGBs?
01:14Yeah, so one more reason to be a little bit more worried, particularly about the long end of the U
01:20.S. yield curve.
01:21Japanese investors hold a significant amount of Treasuries, a significant amount of European government bonds as well,
01:26for that matter.
01:27And were they to reduce their holdings overseas in order to put more into Japanese government bonds,
01:33that would, of course, cause a rebalancing effect.
01:35And it might set a precedent for other nations to follow as well.
01:38So it might be a sort of knock-on effect.
01:41I think the bigger concern here is exactly who is buying all of those U.S. Treasuries at the moment.
01:47The ownership has changed quite a lot.
01:49We know that hedge funds own a lot more as part of the basis trade by shorting the futures
01:55and arbitraging the gap between them.
01:57That makes them much more volatile and susceptible to kind of flight in times of risk.
02:03So it's not great for the U.S. government.
02:05They would prefer long, stable pots of cash investing in U.S. Treasuries.
02:09Yeah, I think everybody would like that.
02:11That would be very nice.
02:12Paul, we're going into a weekend.
02:15The U.S. markets will close.
02:16Are we going to get more Gulf-related action at that point?
02:20Is that the risk that we worry about going into this weekend?
02:24Well, so the trading pattern that we had, remember, we had a conversation like this during the war,
02:29the weekends were the worst time of the week for traders because they weren't able to, you know,
02:34kind of change their positions if there was any kind of flare-up in the tensions.
02:38So people would get very nervous on a Friday and BAB closing down their positions as much as possible.
02:44So there wasn't that much risk of the weekends.
02:46I think we're in a different environment right now.
02:48The market is still relatively calm despite the flare-up that we saw in the tensions over recent days.
02:55And the reaction in the crude oil price even wasn't that extreme.
02:59So maybe not the same as we were before, but people will still be watching their mobile phones for news.
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